Elasticity of import demand for wood pellets by the European Union

- This study used a source-differentiated almost ideal demand system (AIDS) model to investigate wood pellet imports into the European Union from 2009-2015.
- The United States has taken market share from Canada and Russia as the wood pellet market has expanded.
- The AIDS model suggests that non-price factors are key drivers of the import market.
- Factors such as wood pellet quality, supply reliability and perceived environmental sustainability are likely important strategies for producers going forward.

Import demand for wood pellets by the European Union (EU) was investigated using a source-differentiated non-linear Almost Ideal Demand System (AIDS) model with monthly data from 2009 to 2015. Our research provides the first complete set of expenditure, price and cross-price elasticities for this rapidly expanding forest product market. Expenditure elasticities reveal that wood pellets from the United States have the most to gain from an expansion in EU expenditures, followed by Canada, while Russia has the least to gain. We attribute this result to differences in the quality, reliability and sustainability of wood pellet supply between the countries. The degree of substitution among the major suppliers was also assessed through cross-price elasticities.