Small Sawmills in Estonia

Government support of industry in transition economies needs to be judged by the industry's potential to become self-supporting. Government assistance should be designed with this goal in mind. The case of small sawmills in Estonia is a good illustration of this. Estonia's priorities for economic development include promotion of exports, small business and regional development. Small sawmills satisfy all three priorities but the industry's long run viability is in doubt. Current cost advantages depend on cheap raw material, labour and electricity, which are likely to disappear or be reduced with EU membership or further economic reform. Long run viability could emerge if producers cooperate in purchasing raw material, securing access to credit and marketing and adopt a niche market approach. Government can assist by providing export market support, credit access, a revised auction system for roundwood, retraining and extension programs and assistance in financing the set-up of joint-use production facilities. But such assistance, except for structural changes to promote competition and export marketing support, should all be temporary if the industry is ultimately to compete in the Western Europe market.