The government’s decision to adjust three-year contract prices set by JSC Latvijas valsts meži (LVM) helped stabilize the sector at a critical moment, according to a letter from woodworking industry representatives sent to Prime Minister Evika Siliņa (JV) and Minister of Agriculture Armands Krauze (ZZS), obtained by the LETA news agency.
The letter explains the 2023 timber market situation and the justification for the Cabinet of Ministers’ decisions. It is signed by the companies Smiltene Impex, AKZ, Stora Enso Latvija, Kurekss, Vika Wood, Rettenmeier Baltic Timber, BSW Latvia, and Gaujas koks.
Representatives note that starting from the fourth quarter of 2022, the sector was affected by a significant downturn in the timber product market. Construction volumes, sawn timber demand, and prices fell sharply, while construction markets in Europe and Asia slowed and market dynamics became unpredictable.
According to the letter, these changes directly affected production, employment, and profitability, which was reflected both in the Ministry of Agriculture’s (MoA) reports and in corporate annual statements.
Wood processors emphasize that the majority of signatory companies operated with substantial losses
in their core activities in 2023. In some cases, final annual results were balanced by other financial items that did not reflect the true production situation, meaning the scale of losses is not always directly visible in annual accounts. Still, this does not change the fact that 2023 was one of the most challenging periods for the softwood sawmilling sector since 2008.
After assessing data from late 2022 and operative data from 2023, industry representatives approached the MoA, explaining the crisis situation, its causes, and urging the creation of a mechanism to align raw material prices with real market conditions.
Wood producers stress that the Cabinet decision on LVM’s price adjustments for three-year supply contracts was not a form of state aid. Instead, it corrected raw material prices to match market levels at a time when indexed contract prices no longer reflected economic reality. Any figures mentioned publicly represent the difference between actual market prices and outdated indexed prices, not subsidies. The correction was, they argue, a rational, state-minded step to prevent another year of losses in the sector.
According to the companies,
the 2024 price adjustment stabilized the situation at a critical moment and helped avert risks
that otherwise would have affected export capacity, investment, tax revenue, and regional employment. It allowed the softwood sawmilling sector to restore production volumes in 2024 and 2025, modernize operations, and increase employee wages, contributing to Latvia’s economy.
Wood processors maintain that the decision was necessary and economically justified, as it ensured continued production, competitiveness, and tax contributions.
It has already been reported that Minister Krauze has turned to the Prosecutor General’s Office regarding the support for wood processors.
The ministry told LETA that prosecutors have been asked to examine possible unlawful actions by officials and the legality of decisions related to the Cabinet’s resolutions on the 19th of December, 2023 and on the 25th of June, 2024 concerning LVM timber price corrections in line with free market prices.
At the same time,
the Progressives party has submitted a separate request to the Prosecutor General’s Office regarding MoA-led support
for the industry. The party has previously argued that it must be evaluated whether the designed support mechanism was optimal for the public interest and asked the ministry for justification.
The Prosecutor General’s Office has launched a review to determine whether officials acted in accordance with the law when deciding on support for wood processors.
It has also been reported that LVM’s CEO, Pēters Putniņš, resigned in October. He did not comment to LETA on the reasons.
TV3’s investigative programme Nekā personīga earlier reported that Putniņš likely resigned due to political pressure. According to the programme, the resignation may be linked to the government decision to favour wood processors who had committed to three-year contracts with LVM at relatively high prices.
The programme noted that the LVM board under Putniņš had previously refused to revise the concluded long-term contracts, arguing that lowering prices would constitute wasteful use of public funds.
In their official response letter, signed by Putniņš and board members, LVM explained that such changes would reduce LVM’s income by millions of euros and would constitute waste of state resources.
The decision would also have to be assessed in the context of EU competition rules, as it could be considered unlawful state aid.
However, at the end of 2023, Minister Krauze and then State Secretary Raivis Kronbergs—who also represents the state as LVM shareholder and is now Director of the State Chancellery—submitted a memo to the government describing factors negatively affecting Latvia’s wood industry competitiveness. The programme reported that the memo tried to create the impression of an emergency in the sector, claiming Latvian sawmills were losing competitiveness due to high raw material prices, and therefore market stabilisation required LVM to effectively grant discounts on long-term supply contracts.
The Ministry of Environmental Protection and Regional Development (VARAM) opposed this, stating that the difficulties faced by the industry were only one year long, whereas previous years had brought record profits: €201 million in 2021 and €102 million in 2022. VARAM also warned that price reductions in long-term contracts would mainly benefit large processors rather than the sector as a whole.
Based on Krauze’s ministry memo, the government instructed LVM to apply significantly lower average weighted prices—not the originally bid higher prices—to long-term softwood sawlog contracts from the 1st of January, 2024. It also required the Ministry of Finance to assess the impact on LVM’s income. It was determined that LVM’s quarterly profit fell by €7.54 million. The annual impact was not assessed, but Nekā personīga reported that this government decision in favour of sawmills cost LVM more than €30 million.
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