What is a cluster?
A cluster is a group of inter-related industries and organisations whose links with each other improve their overall competitiveness. They can be each other's customers, suppliers, researchers, partners or competitors. Those who take part in a cluster recognise the advantages of these relationships and share in success.

The Scottish Forest Industries Cluster
The Scottish Forest Industries Cluster encompasses all those companies, organisations and industries involved with the planting, management and harvesting of forests, through sawmilling, pulp, paper and board production to the production of higher value manufactured goods. It incorporates input from the chemicals and machinery sectors, as well as from business support and education institutions.

The Cluster was established initially as a partnership between the Forest Industries Development Council (FIDC) and Scottish Enterprise (SE) - the Government's economic development agency for lowland Scotland.  In October 2004, the undertakings of FIDC were taken over by the new representative body for the forest industries, the Confederation of Forest Industries Ltd (ConFor), with whom SE is now in partnership.

The Scottish resource
Forests cover 16% of Scotland's land area. Most of the timber resource is found in Dumfries and Galloway, the Borders, Tayside, Forth Valley, Argyll, Grampian, and the Highlands and Islands. Scotland currently accounts for 60% of the British conifer harvest (4.8 million m³) and Scottish sawmills, which are well-represented in all of the above areas, produce 42% of British lumber production. The next largest softwood user is the wood-based panels sector which, together with the pulp and paper sector, account for over 55% of total roundwood consumption in Scotland. There are panel/board manufacturers in Inverness and near Stirling, and paper manufacturers in Ayrshire.

Although the production of softwood dominates the industry, there is a significant amount of hardwood production taking place in Scotland and the exploitation of this resource is also developing, with efforts to increase added-value products, such as hardwood flooring.

Growth prospects for the industry
By 2016 the supply of softwood in Scotland will exceed 8.4 million m³ - a doubling of the existing harvest. This places the Scottish Forest Industries Cluster in a unique position as Britain imports 90% of its paper; almost 80% of its lumber; and a third of its wood-based panel consumption. Currently the annual cost of these imports is £6 billion. There are clear opportunities for import substitution and additional job creation with minimal displacement. It is essential that the Cluster takes the appropriate steps now to ensure that this opportunity is maximised. Recent studies suggest that imports could be reduced by over one fifth, with Scotland benefiting from a transfer of £1.5 billion and 3,000 additional jobs, as a result.

New markets are also developing for biomass energy projects and there are already examples of biomass power generation associated with sawmill residues in the Highlands and Islands. The Scottish Renewables Order - a subsidy made to companies which produce electricity from non-fossil fuel sources - makes this kind of project more likely.

The competitive environment
The forest products industry is very much influenced by globalisation and industry restructuring. Scotland has the potential to develop global companies; at present it plays host to a number of these, e.g. UPM Kymmene plc, Norbord Ltd, and Egger (UK) Ltd. The industry is subject to global price, supply and quality fluctuations and this makes it very cyclical. The capital intensive nature of investment in the industry makes the industry cautious; however, this also means that the investments that are made, do tend to last.

Cross-linkages
The Scottish Forest Industries Cluster is well-established with a strong supply chain and forward linkages from growers through processors to the construction, paper, printing and publishing, furniture, timber and board products industries. There are weaker backward linkages with the chemicals and equipment sectors. Scotland's forests form a significant part of the ambient landscape, as well as contributing more directly to tourism through amenity provision and accommodation. Increasingly, linkages are developing with the power generation industry and with agriculture through biomass projects. There are strong links with the training and education sectors through accreditation and certification schemes.

Potential to develop the industry
There are forests in Eastern Europe that are larger than Scotland and we cannot hope to compete directly with them. Nonetheless, Scotland has the potential to become a major producer of fibre resource and wood products, and presents significant hosting opportunities. Scotland has suffered with the strength of Sterling in recent times, making imported softwoods more competitive. This situation has been exacerbated by a world oversupply. Scotland will first have to consolidate and expand its own home market before taking on the world.