​Executive Summary
Lumber manufacturing remains an economically important industry in the State of Washington. The sector has added value to Washington’s timberlands and continues to generate the majority of regional timber demand. Lumber production contributes to rural economic development and employment. Lumber manufacturing has remained particularly viable in western Washington, despite macroeconomic uncertainty, regulatory constraint, and competition from foreign and other domestic producers. The last economic assessment of the western Washington lumber industry was performed in 1991 (Stevens).
This study applied classical economic techniques to provide insight into how lumber manufacturers in western Washington responded to market conditions from 1972 to 2002. Lumber manufacturing activities were investigated using a three-input Cobb-Douglas and a transcendental logarithmic (translog) cost function.
Analyses were performed using a panel data set with biennial time series observations from 1972 to 2002 for sixteen western Washington counties. The measures used to assess economic performance were economies of scale, Allen and Morishima partial elasticities of substitution, own- and cross-price factor demand elasticities, and technical change. These measures were investigated at regional, biennial, and county level scales.
This study shows the western Washington lumber manufacturing sector can be modeled with nonconstant returns to scale, nonunitary elasticity of substitution, and biased technical change among the inputs capital, labor, and logs. Substantial substitution possibilities between factors of lumber production exist, and a fixed- proportion functional form like the Cobb-Douglas is inappropriate to model the lumber industry structure. The estimated translog cost function was well-behaved and an appropriate choice of functional form for the western Washington lumber industry.
Lumber production costs are most sensitive to the price of logs, followed by the price of labor and least impacted by the price of capital. Mean cost share values for logs, labor and capital are 58, 24 and 18 percent, respectively. At the regional level, sawmills have captured economies of scale in the production of lumber. A 10 percent increase in output resulted in a 0.418 percent reduction in costs. Economies of scale values jumped during the 1980s recession as firms produced radically less output and faced higher input costs; values subsequently declined as firms exhausted scale economies during times of harvest level reductions in the 1990s.
At the regional level, Allen and Morishima partial elasticities of substitution agreed that all inputs were inelastic substitutes with the greatest substitutability between capital and labor and least substitutability between logs and labor. Capital demand was the most own-price responsive and log demand the least. Cross- price demand elasticity was greatest between capital and labor; cross-price elasticities for all input combinations including logs were near zero. Demand for logs was highly inelastic with respect to own-price and the price of other inputs. This pattern was relatively consistent across time and across counties, although at finer scales greater evidence of complementary between inputs was noted.
Expansion of lumber production and capacity over time primarily occurred in Lewis, Pierce, Clallam, and Cowlitz Counties owing to new sawmill infrastructure. Gains in Cowlitz County were primarily made from investments in existing mills. Lewis gained one large mill in 1998, increasing the total number of large mills to seven, but additions in existing sawmills contributed to increase capacity. The number of large mills in

Pierce County remained constant from 1996 to 2002; capacity investments in existing mills led to increased lumber output. Although capacity in Snohomish County sawmills rose, the loss of three large mills between 1998 and 2002 caused an overall decline in lumber production. Results point to processing capacity centers developing in two areas, Clallam County on the Olympic Peninsula and counties along the I-5 corridor south of King County. Restructuring of log export markets, proximity to Interstate-5, and port access seem to be factors in industrial expansion, but the magnitude is unknown.
 
 

​Executive Summary
The Japanese glulam beam market has been growing steadily since the early 1990’s. From 1993 to 2007, total glulam beam usage increased from 199,300 cubic meters to 1,814,100 cubic meters. Japanese glulam beam supply comes from both domestic production and imports.  In 2007, 65% of Japan’s glulam beam production was from domestic manufacturers. However, even though these glulam beams are manufactured in Japan, much of the lamstock lumber used to produce glulam beams is imported. Two of the major imported lamstock species are European whitewood and Russian red pine.
Recently, a number of factors have combined to constrict the imported lamstock supply including a Russian log export tax, the increasing strength of the Euro and Canadian Dollar, and increased demand for wood in Europe and the Middle East. The researchers travelled to Japan and interviewed representatives from Japanese glulam manufacturing facilities. The company representatives were asked what species they are currently using for lamstock, technical specifications, market conditions, and what species they intended to use in the future.
The results of these interviews support the conclusion that there is potential for Alaska hemlock, Alaska yellow cedar, and Alaska Sitka spruce to supply Japan with lamstock lumber. However, the Japanese lamstock market requires that lamstock lumber be kiln dried and milled to exact metric dimensions. In order for Alaska forest products manufacturers to gain entry into the Japanese market, the following recommendations should be considered:
1.  Organize workshops to teach Alaska sawmills about the technical requirements of the Japanese lamstock and glued laminated beam market.
2.  Pre-qualify sawmills in Alaska that have the technical capability to produce kiln dried lamstock for the Japanese market.
3.  Organize a trade mission to visit glulam manufacturers in Japan.
4.  Display Alaska lamstock samples and literature at the Japan Home Show held annually in Tokyo.
5.  Invite potential Japanese customers to visit sawmills in Alaska.
6.  Create Alaska lamstock brands based on the established WWPA registered trademarks. For example, Alaska Hem Lam, Alaska Yellow Cedar Lam, and Alaska Sitka Spruce Lam.
7.  In addition to lamstock, lamstock blanks could also be considered for export to Japan.
 

Executive Summary
For fifteen years between 1989 and 2004, US exports of softwood lumber were mired in decline. During this period, the volume of US softwood lumber exports plunged from approximately 8 million m 3 to less than 2 million m 3 . This trend was a reflection of the relatively strong dollar which undermined the competitiveness of US softwood lumber, coupled with regulatory changes in major export markets (particularly Japan ) and a strong housing market in the US . This combination of adverse factors influenced many US softwood lumber manufacturers to abandon their traditional export markets. This was especially evident in Japan where US exports of softwood lumber dropped from 3.5 million m 3 in 1989 to just 115,000 m 3 by 2005.
Recent years have seen a rapid reversal in some of the macroeconomic factors affecting the US softwood lumber industry. The US dollar has weakened considerably against both the Canadian dollar and the euro, greatly increasing the competitiveness of US wood products in export markets. Since 2002 the US dollar has weakened by 33.7% against the Canadian dollar (and is now almost at par with the Canadian currency) and by 34.1% against the euro. This alone has substantially increased the competitiveness of US softwood lumber in most markets.
At the same time, demand for softwood lumber in the US has fallen substantially as a result of the weak housing market. Since 2005, housing starts in the US have declined by 12.8% from 2.06 million starts in 2005 to 1.8 million starts in 2006. Housing starts are projected to drop further in 2007 to between 1.5-1.6 million. In response to the weak housing market, demand for softwood lumber in the US dropped by 6.4%, from 64.3 bbf in 2005 to
60.1 bbf in 2006. More worrying is the fact that US softwood lumber demand is projected to drop to 54.2 bbf in 2007 before recovering only slightly in 2008 to 56.7 bbf.
With prices low and demand weak in the US market, many softwood lumber manufacturers have begun looking offshore again. Between 2004 and 2006, the volume of US softwood lumber exports grew by 18.6% to reach 2.2 million m 3 . More importantly, the value of softwood lumber exports has jumped by 35.5% to reach $592 million. Softwood lumber exports have remained strong during the first four months of 2007, with exports increasing by 14.5% in terms of volume and 25.7% in terms of value. Encouragingly, the strong export performance of softwood lumber has not been confined to a small group of traditional softwood lumber export markets but has occurred across a broad range of markets. In the UK , softwood lumber exports are up by 675% in the four months of 2007, propelling the UK from the 14 th largest market to the third largest market for US softwood lumber.
Douglas-fir (DF) lumber used for beam applications ( hirakaku ) continues to enjoy success in Japan . This success can largely be attributed to the superior performance (with respect to strength, straightness, dimensional stability, and visual appearance) of DF relative to other timber species. Thus, DF maintains a reputation as the premier timber species for hirakaku applications. Yet despite its strong reputation, DF has seen its market share slowly eroded by alternative lumber products such as European whitewood and European redwood glulam lumber. The primary basis for this trend has been the shift towards pre-cut housing components as well as the price sensitivity of Japanese home builders and pre-cutting manufacturers.
The objective of this research was to evaluate the use and specification of structural lumber within the Japanese post and beam construction market, particularly with respect to Douglas-fir lumber in beam applications. In addition, this project follows up on the recommendation of an earlier marketing report recommending that US Douglas-fir manufacturers consider the feasibility of developing and introducing branded DF hirakaku lumber in

Japan . In order to develop a better understanding of the potential opportunity for branded DF hirakaku lumber, two focus groups sessions were held with home builders in Japan . The focus group sessions were supplemented by personal interviews with Japanese post and beam home builders and pre-cutters, the two major end-users of DF hirakaku. Finally, visits were conducted to the major DF sawmills in Japan to develop a better understanding of the competitive role of Japanese DF lumber producers in the market and to explore the role of branding in the marketing of domestically sawn Japanese DF lumber.
Material use in the residential construction industry has been affected by several regulatory changes in Japan . In May, 1998 the Building Standard Law of Japan (BSL) received its first major revision since 1950. To a large degree these revisions were in response to the widespread devastation caused by the Kobe earthquake in 1995 and the perception that the structural performance of wooden post and beam homes, as well as the regulation of construction practices, needed to be improved to ensure the safety of homeowners in Japan . However, the single most important factor affecting the use and specification of structural softwood lumber for use in residential construction in Japan has been the Housing Quality Assurance Act (HQAA). The HQAA was promulgated to improve the quality and performance of new homes and provide homebuyers with specific safeguards and rights when purchasing a new home. The HQAA was developed partially in response to the poor performance of post and beam houses in the Kobe earthquake, but also in response to increasing complaints from home buyers about construction defects and the lack of responsiveness on the part of home builders in correcting those defects.
Japan 's domestic lumber industry presents a contrast to the overall low level of timber self-sufficiency. Whereas over 80% of Japan 's total timber supply is derived from imports, only about 40% of Japan 's softwood lumber demand is provided by imports. Despite Japan 's relatively high level of self-sufficiency in softwood lumber, the domestic lumber industry is characterized by declining production levels as smaller, less efficient sawmills have closed down. The domestic sawmill industry was particularly hard hit by the Asian economic crisis, with the number of sawmills declining from 14,028 in 1996 to 12,810 in 2001. These sawmill closures resulted in large declines in productive capacity from 1997 to 1998. Over the past five years, domestic lumber production has declined from 25 million m 3 to less than 14 million m 3 (and the number of sawmills in 2006 has declined to 8,590), while lumber imports have increased to approximately 9 million m 3 . The combination of declining domestic lumber production and slowly increasing import volumes means that self-sufficiency dropped from 74% in 1991 to the current 60%.
Recent developments in Japan and the US have favorably affected the competitive position of US softwood lumber in Japan and renewed US exporters interest in the Japanese market. The weakening of the US dollar relative to its major competitors in Japan , a weak US housing market and the announced export tariffs on Russian logs all bode well for US lumber in Japan . Therefore, it is in the US forest products industry's best interest to work to work with their Japanese customers to convince Japanese home builders and home buyers that using DF hirakaku is worth the small price premium it commands in the market. For example, a promotional campaign emphasizing the strength, durability and natural beauty of Douglas-fir structural lumber could be very helpful in Japan . In the absence of this type of promotional effort, DF hirakaku products can be expected to continue losing market share in the long-term. One recent estimate derived from interviews with pre-cutters and lumber wholesalers suggests that between 2000 and 2010 the market share for DF hirakaku could shrink from 83% in 2000 to 70% in 2010.
There are a number of factors that constrain the competitiveness of solid sawn US DF hirakaku in Japan, including: high cost of kiln drying large size DF hirakaku, the difficulty in shipping green hirakaku to Japan without developing surface mold and discoloration, the difficulty in maintaining a stable moisture content for kiln dried DF hirakaku during the shipping period to Japan, price fluctuations, reluctance to cut to the lengths required by pre-cutters, the size of the domestic Japanese DF sawmill industry, the high cost of maintaining inventory in Japan, the ready availability of lower cost hirakaku products from domestic DF sawmills and foreign glulam suppliers, the extremely large number of hirakaku size combinations that require a huge number of different hirakaku product sizes (approximately 140 size combinations) and the attendant high inventory costs, and the difficulty in establishing an effective distribution system in Japan
Given the serious constraints associated with establishing and maintaining an adequate supply of imported DF hirakaku in Japan , we would recommend that the US industry not develop a branding program for DF hirakaku in Japan . This decision is further supported by the fact that there is currently a large, well established domestic DF

sawmill industry in Japan . The fact that Japanese DF sawmills have already developed branded hirakaku products further supports this recommendation. It is difficult to see where US sawmills would have a competitive advantage over Japanese sawmills producing branded products, particularly considering the well established distribution channels that the Japanese sawmills have already developed within the pre-cutting and home building industries. Despite this, there are substantial opportunities for US DF sawmills to establish direct supply relationships with medium-sized regional homebuilders and larger national homebuilders. These homebuilders have become extremely cost conscious in the past decade and many expressed interest in purchasing building materials directly from US sawmills as a way to reduce distribution channel costs and improve product quality.
In addition, there is a good opportunity to export kiln dried DF glulam lamina to glulam manufacturers in Japan . This is particularly true if the US industry were to promote DF glulam hirakaku as a superior product to either European whitewood or redwood glulam. However, it would be important for US lamstock producers to resolve the forward pricing issue that currently provides European glulam manufacturers with a competitive advantage. There is also an opportunity to export lamstock produced from other species as well. For example, Alaska yellow cedar lamstock for glulam sill plates ( dodai ) and Sitka spruce for glulam hirakaku. Further research would be required to develop a better assessment of the potential for exporting lamstock to Japanese glulam manufacturers.

Executive Summary
As China’s economy has grown and personal income has risen over the past decade, spending on landscaping and public works projects has increased dramatically, and with it China’s demand for treated softwood lumber. New luxury residential developments commonly include traditional Chinese landscape design, which includes man- made lakes and waterways traversed by footbridges and flanked by wooden fences, gazebos, and pavilions with decks. Government projects to revitalize shopping areas and tourist destinations has boosted demand for high- quality US treated southern yellow pine (SYP) lumber used to build walkways, bridges, stages, and landscaping elements.
Treated softwood lumber is a relatively new product in China, yet imports have increased steadily over the past several years. However, as demand for treated softwood lumber has increased, the number of domestic wood treaters has also increased. These new Chinese lumber treaters pose a competitive threat because many produce poor quality treated lumber which threatens to undermine the good reputation that US treated SYP has established.
This research is intended to provide US suppliers with a description of the Chinese treated softwood lumber market and strategic marketing recommendations. This report is based on information collected through interviews with treating plant managers, softwood lumber distributors, and other industry experts. Additional information was collected from surveys completed by Chinese architects, distributors, and other construction professionals.
The report consists of four parts: 1) an overview of the China’s wood preserving industry, 2) a description of the Chinese treated softwood lumber market, 3) results of surveys about user perceptions and attitudes about various treated softwood lumber species used in China, and 4) strategic implications for US manufacturers, exporters and industry associations.
Key findings include the following:

1. China’s treated softwood lumber market is extremely competitive and price dependent. The majority of the treated lumber used in China is supplied by local treaters offering low prices. Russian pine treated with Chromated Copper Arsenate (CCA) is by far the most widely used treated softwood lumber species in China, due to its low price. However, imported and Chinese treated US SYP is quickly establishing a niche in high-quality market segments and many Chinese treaters report that they would buy as much untreated US SYP as they have access to. The majority of treated SYP from the US is used in government-funded projects where interest in quality and durability is more important than low price.
2. Chromated Copper Arsenate (CCA) is the most widely used treating chemical used by Chinese treaters. A growing number of Chinese treaters have started to use Alkaline Copper Quatenary (ACQ) and several are developing their own environmentally responsible treating chemicals. Since China has no regulations governing the preservative treated lumber industry, most Chinese treaters develop their own chemicals or dilute purchased preservatives to reduce costs, and the quality and durability of lumber treated with these chemicals is reportedly poor. As China’s government enacts more environmental standards and as more

Chinese manufacturers follow international environmental standards as a means of accessing international markets, interest in environmentally-friendly treating chemicals should increase. Survey responses indicate that Chinese construction professionals rate the importance of environmentally-friendly treating chemicals fourth highest in a list of ten quality and service attributes associated with preservative treated softwood lumber. With no regulatory body however, the majority of Chinese treaters will likely use substandard preservative treating chemicals and treating procedures to keep product costs low.

1. According to survey results, US treated SYP has established a reputation as a high-quality, durable and environmentally-friendly building material. As stated above, since China has no standards governing proper treating methods and chemicals, and no testing body to ensure the quality and durability of domestic treated lumber, US industry representatives are concerned that domestically treated softwood lumber may erode the reputation of US treated SYP.

1. While survey respondents rated softwood species from the western US highly, Chinese treaters have negative perceptions about the species. Primary concerns were that Douglas-fir lumber does not absorb preservative treating chemicals completely and the ends require re-treating if the lumber is sawn after initial treating. Conversely, treaters were resistant to using Hem-fir because it absorbs preservative treating chemicals too readily, which increases the price of treating.
2. According to interviews with Chinese lumber treaters and softwood lumber distributors, US exporters face several barriers to expanding their market share in China. The most significant of these obstacles is that most consumers do not understand the differences in performance and durability between imported US treated softwood lumber and less expensive domestically treated lumber. Second, US suppliers continue to face obstacles associated with not providing lumber in metric sizes. Finally, Chinese distributors report that not having ready access to US lumber prices hampers their ability to quote prices as readily as suppliers of domestic treated lumber.
3. Environmental regulations in China are few and enforcement is inconsistent. However, the Chinese government is reportedly investigating the feasibility of reducing environmental pollution by imposing legislative and economic measures on “dirty” industries. Industry experts anticipate that new

environmental regulations applied to the Chinese wood treating industry may improve the competitiveness of US preservative treated lumber compared to locally treated lumber.

1. China’s distribution system for softwood lumber is regionally fragmented with hundreds of thousands of distributors, trading markets, and sales outlets across the country. This regional fragmentation makes it important for US suppliers to work with distributors in several regions of China or with a distributor who has a network of regional representatives. Chinese distributors who have become recognized as experts with a basic understanding of wood frame design and softwood lumber performance characteristics have gained a competitive edge over their less knowledgeable competitors.
2. As manufacturers and distributors work to differentiate themselves from their competition, survey respondents report an interest in naturally decay resistant and lesser used species such as Alaska yellow cedar, Sitka spruce and western red cedar from the western US and Canada.

The US softwood lumber industry has been successful in developing the Chinese market for preservative treated softwood lumber. To a large degree, this success has been based on educational programs that have raised
construction professional’s awareness of the superior performance and durability of softwood lumber that has been properly treated to international wood treating standards.  The results of this research clearly demonstrate that there is a brand awareness of US preservative treated southern yellow pine as the “gold standard” of treated softwood lumber products in the Chinese market. Like any successful branding effort, the rapid development of the preservative treated softwood lumber market has spawned low-cost domestically treated products with inferior performance and poor durability. Often, domestically treated SYP is marketed as US-treated SYP. In other cases, pine from South America is marketed as US SYP. In a price sensitive market like China, where markets tend to move towards a commodity focus, it is hardly surprising that these domestically treated, low-priced products have gained a surprising degree of market success.
The success of these inferior treated lumber products threatens to undermine the entire market for treated softwood lumber if consumers associate the poor performance and low durability of this domestically produced inferior treated lumber with all treated softwood lumber. To the extent that US preservative lumber

manufacturers and exporters allow the commoditization of treated softwood lumber, they stand the risk of having US treated lumber be subject to consumer perceptions based on the poor quality of domestic Chinese treated lumber. From a marketing perspective, it becomes important that the US industry adopt a branding strategy that allows consumers and end-users to differentiate high quality US treated lumber from low quality domestically treated lumber. Thus, it is imperative that the US treated lumber industry work with industry associations and their Chinese distributors to implement a promotion and education strategy to differentiate US preservative treated lumber from competing products.
Fundamentally, this marketing strategy would help prevent the commoditization of US treated lumber in the Chinese market and ensure that the poor performance of domestically treated lumber in China does not adversely affect the reputation or demand for US treated lumber. Failure to do this would seriously jeopardize the market for US treated lumber in China.

​Abstract
The trade of softwood lumber between the United States and Canada is one of the major forest products trade flows in the world. Since 1996, exports from the four major softwood lumber producing provinces in Canada (British Columbia, Alberta, Ontario, and Quebec) into the US have been regulated by the voluntary export restraint (VER) as defined within the "Softwood Lumber Agreement between the Government of Canada and the Government of the United States of America" (SLA). The SLA allows Canadian producers to export up to 14.7 billion board feet (bbf) of softwood lumber without export fee and imposes high export fees on volumes exceeding the limit. The SLA is a temporary resolution of the trade dispute between the two countries that has lasted for more than fifteen years and is set to expire on March 31st, 2001.
The objective of this study is to determine if the expected effects of the SLA on the US softwood lumber market during the period 1996-1999 have actually occurred. The study discussed four possible direct effects and five possible indirect effects that the SLA might have had on the US softwood lumber market from a simple economic model and a review of the literature. The expected direct effects include: 1) a regulated volume of softwood lumber imports into the US from the four major provinces in Canada, 2) an increase in the price of softwood lumber in the US, 3) an increase in US softwood lumber production, and 4) a decrease in US softwood lumber consumption. The expected indirect effects of the SLA include: 1) a shift in the composition of countries exporting softwood lumber into the US, 2) an upgrade in the quality of softwood lumber exported from the four major Canadian provinces into the US, 3) an increase in the volume of softwood logs and value-added wood products exported from Canada into the US, 4) some attempts by Canadian manufacturers to avoid the export permit requirement under the SLA, and 5) an increase in the use of alternative products (both wood and non-wood) as substitutes for softwood lumber in the US. The study also provides a discussion of the alternative solutions that might be implemented upon the expiration of the SLA on March 31st, 2001 and a discussion of desirability/undesirability of the SLA based upon future softwood resource availability in the US.
 

Executive Summary
Currently, less than one percent of the private and industrial timberlands in the Pacific Northwest (PNW) are managed for hardwood production. In order to provide an incentive to manage the hardwood resource actively, hardwood stumpage prices must be consistently competitive with conifer stumpage prices, although this has generally not been the case in the PNW. A variety of factors could contribute to hardwoods being more actively promoted in the timberland manager’s portfolio. For example, species diversity provides stability in a cyclical market, improves soil fertility, and promotes biodiversity in forest stands.
The hardwood industry in the PNW, largely red alder, has experienced surprising success over the past decade in both domestic and international markets. This success is of interest considering that commercial hardwood species in the PNW have traditionally been considered a low value by-product of the softwood inventory. While PNW hardwoods have enjoyed increased market acceptance, little market research has been done to characterize the hardwood industry or identify the factors that have contributed to its success. The objectives of this research were to: 1) explore the competitive conditions of the hardwood industry, 2) identify the range of products currently manufactured from hardwoods, 3) analyze current hardwood markets (domestic and international), 4) identify the factors that are perceived to restrict the growth of the hardwood industry in the PNW, and 5) assess future market and product opportunities for PNW hardwood products.
Since the number of firms involved in hardwood lumber production in the PNW is relatively small (less than 15), a census of the hardwood industry was conducted. The PNW region, for the purpose of this research, consists of western Washington, western Oregon, and northern California. The survey was administered via fax to each firm in the sample frame. Thirteen hardwood manufacturers were contacted. Of the firms contacted, 10 completed and returned the survey, an effective response rate of 76.9%.
ResultsThe PNW hardwood lumber industry directly employs approximately 2,000 workers. Collectively, the hardwood lumber manufacturers surveyed in this study produced approximately 450 mmbf of lumber, with exports totaling approximately 126 mmbf or 28% of total production. The range of products manufactured included kiln dried and green lumber, pallet stock, veneer, plywood, agricultural boxes and crates, and chips. Hardwood chips represent the primary by-product and all of the chips produced are sold to pulp and paper manufacturers. Approximately half of the slabs and sawdust generated are sold (as chips and mulch, respectively) with the remainder being burned as hog fuel. Similarly, approximately one-third of the planer shavings and bark are sold for livestock bedding and landscaping bark, respectively, with the remainder being burned as hog fuel.
While both large and small hardwood lumber manufacturers sell a substantial percentage of their production direct to the end-user, large manufacturers tend to rely on wholesalers to the exclusion of brokers. In the case of small manufacturers, the opposite is true and they tend to favor brokers while minimizing their use of wholesalers.
Problems and Threats to the Hardwood Industry: The problems confronting manufacturers in the hardwood industry were categorized into three areas: domestic regulatory issues, domestic resource issues, and international regulatory issues. Survey respondents were asked to indicate the impact of each factor on

the competitiveness of their firm. Respondents utilized a seven-point scale ranging from a value of 1 (Strong Negative Impact) to 7 (Strong Positive Impact).
Domestic Regulatory Factors: The range of domestic regulatory factors identified in the survey included: federal harvest regulations, state forest practice regulations, and state taxes. Survey respondents indicated that all three domestic regulatory factors had a negative impact on the competitiveness of their firms. The mean scores for the three factors (state taxes, federal regulations, and state forest practice regulations) were 2.6, 2.8, and 2.9, respectively.
Domestic Resource Factors: The specific hardwood resource factors examined in the survey included rising raw material prices, rapid price fluctuations (i.e., price volatility), labor quality, resource availability, and resource quality. Rapid price fluctuations and increasing raw material prices were perceived as having the most negative impact on competitiveness, receiving an average score of 2.8 and 3.1 respectively.
Quality of labor (4.1) and resource quality (4.3) were each generally perceived to have relatively little impact on the overall competitiveness of the respondents’ firms. It is interesting to note that resource availability, with a mean score of 4.6, had a slightly positive impact on overall competitiveness.
International Regulatory Factors: The international regulatory factors included in the survey were: regional trade agreements, tariff barriers, non-tariff barriers, and sustainable forest certification. The survey results suggest that environmental certification of wood products (3.4) and tariff barriers (3.4) were perceived to have a more negative impact on the competitiveness of hardwood manufacturers than were non-tariff barriers (3.6) and regional trade agreements (3.7), although the difference in score was small.
Further analysis of the survey data showed that hardwood firms exporting to Europe perceived environmental certification as having a more adverse effect on their competitiveness than did firms exporting to Asia and North America.
Marketing Variables: Survey respondents were asked to evaluate the importance of each variable to the competitiveness of their firm using a seven-point scale ranging from 1 (Not Important) to 7 (Very Important). The importance ratings for the individual marketing variables indicate that a firm’s reputation within the hardwood industry was identified as the single most important marketing variable, receiving a mean score of 6.7. Communicating regularly with customers, product quality control, and providing on time delivery all received relatively high mean scores of 6.3, suggesting that these variables are also very important. Efficient operation of production facilities, with a mean score of 6.1, and procuring raw material, with a mean score of 5.7, were also perceived to be highly important.
It is interesting to note that virtually all of the marketing variables associated with innovation received relatively low importance ratings from survey respondents: developing new products (3.9), manufacturing specialty products (3.9), utilizing new marketing techniques (3.8), conducting market research (3.0), and performing promotional and advertising activities (2.5). Only a single marketing variable associated with innovation, product branding (5.2), was viewed as being relatively important. However, given the low level of importance attached to promotional activities, it remains problematic on how a company might successfully brand its products.
ConclusionsThe hardwood industry has experienced substantial and solid growth over the past ten years despite the timber regulations that have restricted the harvest levels from federal and state forests. This growth has occurred in both the domestic US market as well as in foreign markets which now account for almost 28% of red alder production. While survey respondents did not feel that harvest restrictions had adversely impacted their industry, riparian zone regulations related to endangered salmon populations could have a severe impact on the hardwood resource, particularly if those regulations are vigorously applied to private forests.
Respondents indicated that virtually none of the regulatory factors evaluated in the survey were viewed in a positive light, although few were perceived to have a strongly negative impact on the industry. Despite this, a variety of factors were perceived by respondents to have had a moderately negative impact on the hardwood industry. These factors included: state taxes, federal harvest restrictions, state forest practice regulations, hardwood log price volatility, and hardwood log price increases. It is interesting to note that

while federal and state harvest restrictions were perceived to have a moderately negative impact on the industry, respondents indicated that resource availability has not yet had an adverse impact on the hardwood industry.
Respondents indicated that those marketing variables that influenced a firm’s reputation and production efficiency were the most important in terms of positively impacting the firm’s performance. In contrast, virtually all of the marketing variables associated with acquiring market information and promoting innovation were perceived to have a negative impact on the firm’s performance. In general, these results seem to suggest that hardwood companies in the PNW are conservative and tend to place a low value on the marketing activities associated with innovation and product differentiation.

​Executive Summary
The purpose of this project was to assess market opportunities for second-growth clearwood lumber by identifying industry segments that currently utilize clearwood lumber and determining whether alternative markets will continue to exist for clearwood lumber produced from intensively-managed forests in the Pacific Northwest. The historical lumber price data was analyzed and industry segments that have traditionally utilized clearwood lumber were surveyed.
Survey Results
Of survey respondents 33% were moulding manufacturers, 14% were millwork manufacturers, 10% produced doors, 8% made windows and 23% made other products such as furniture, cabinets, crafts, paneling, stair parts, and other specialty products.
The use of individual species was often associated with specific industry segments. Approximately 81% of the ponderosa pine was used in the production of mouldings and windows. Douglas-fir was primarily utilized in the manufacture of doors (49%) and other products (29%). Southern pine was used primarily in structural products, although 15% was used for mouldings and 11% was used for doors. Approximately 87% of the radiata pine was used for the production of moulding and millwork.
The geographic location of the survey respondents was: 33% from the northeast, 26% from the Pacific Northwest, 25% from the southwest, and 16% from the southeast. On average, most of the firms that participated in the survey could be classified as small- to medium-sized. While respondents’ average annual purchase of softwood lumber was reported to be 5,800,000 board feet, the median volume purchased was just 700,000 board feet. Similarly, while the median sales revenue reported by respondents was $2.8 million, average sales revenue was more than three times that amount. Roughly 50% of the respondents reported total sales revenue of less than $2.5 million.
Concerns regarding the ability of plantation-grown timber to substitute for old-growth lumber products may be exaggerated. The study found that the two most important lumber attributes were reliability of supply and price. The least important attributes were identified as being mechanical strength and vertical grain.
Based on a factor analysis, the original sixteen lumber attributes were reduced to four factors:  timber quality, manufacturing properties, mechanical properties, and price/supply.  The results of the survey suggest that many manufacturers in industry segments that have traditionally relied on clearwood lumber as a raw material input have successfully substituted lower-grade lumber (e.g., shop grade lumber), non-traditional species, and non-wood products to offset reduced supplies and price increases.
In 1989, 58% of respondents indicated that raw material substitutes had replaced 31% of the softwood lumber volume previously used in their production process, although the median volume was only 5%.  By 1994 however, 83% of respondents reported that they were substituting 36% (median of 24%) of their softwood lumber with other raw materials.  This is a statistically significant increase.  The top three reasons that respondents indicated were important considerations in their decision to utilize a substitute product were the price of the substitute, product availability, and reliability of supply.  Reduced environmental impact was reported to be the least influential attribute.
Those manufacturers who did use substitute products in their manufacturing process tended to have higher sales revenue and employed twice as many people as firms that did not use substitute products.  Approximately 60% of moulding manufacturers indicated that they used a raw material substitute for softwood lumber, while 77% of millwork manufacturers, 83% of window manufacturers, 62% of door manufacturers, and all of the structural product manufacturers reported using some raw material substitutes in their manufacturing processes.
Price Trends
Analysis of prices for softwood lumber products at the producer wholesale level (based on bi-weekly spot prices) indicate that, while lumber is a semi-homogeneous product, there are important and persistent differences in value based on species and grade.  The user survey results suggest that price is an important variable in the purchase decision and likewise in decisions to utilize substitute raw materials, including non-wood materials. 
There is a definite structure of nominal and real (inflation-adjusted) prices in the softwood lumber market, indicating that buyers purposefully differentiate lumber on the basis of perceived attributes associated with the intended end use.  Lumber grades, which seek to specify broad groups of product attributes, are imperfect. Lumber products can frequently be downgraded to lower end uses and potentially upgraded through reprocessing, for example, by removing knots to produce short clear pieces of lumber.  However, price trends indicate that lumber grades are a useful basis for differentiating products and to measure how prices perform in both a relative and absolute sense over time.
Relative price analysis indicates that clearwood grades of softwood lumber command a significant premium relative to the overall market, as indexed using Douglas-fir Standard & Better 2x4’s as the baseline commodity index.  The aggregate softwood lumber market is sensitive to macro-economic factors linked to business cycles, particularly to residential construction. As such, considerable fluctuation in aggregate lumber prices can be expected, with the overall vector of product prices moving somewhat in tandem.  Nevertheless, movements in relative prices can and do occur, leading to potential substitution between clearwood lumber grades and other, less expensive lumber grades and non-wood substitutes.
The price analysis confirmed that Shop, C & Better selects, and Moulding & Better grades of Douglas-fir, ponderosa pine, and southern pine lumber command significant relative price premiums over the common and structural softwood lumber grades.  Shop grades of Douglas-fir commanded an average premium of 43% while ponderosa pine #3 Shop commanded a premium of 85% relative to the baseline commodity index.  C & Better Select lumber exhibited an even larger relative premium, 125% for southern pine and 474% for ponderosa pine.  Moulding and Better lumber demonstrated relative premiums of 214% for Douglas-fir and 356% for ponderosa pine.  These relative price premiums were quite stable over the 1989-1995 data period, with long-term trends slightly upward with respect to the relative prices for ponderosa pine C & Better Selects and Moulding & Better grades.
Increasing relative prices, however, provide incentives for buyers to consider substitute products.  While the trends estimated in this study are not strongly upward, taken together with the results of the industry survey, the producers of clearwood lumber grades should be aware of the growing potential for substitute products capable of meeting end user demand and which are price competitive.  In the short-term, considerable relative price instability was evident in response to business cycles, with the consequences being that end users frequently experience rapid increases and decreases in the relative prices of clearwood lumber grades which do not reflect longer-term trends but are perceived as indicators of significant market shifts.  As measured by the standard deviation of relative prices around the long-term price trend, clearwood grades of lumber typically had variations three to eight times greater than commodity structural lumber grades.
Markets respond to changes in perceived relative prices, whether generated by a change in the product’s own price or from a change in the price of a competitive product. The analysis of price elasticities (own-price and cross-price) was limited by the availability of relevant price and consumption information at a disaggregated level. The review of the economic literature indicates that softwood lumber is generally price inelastic in both the short- and long-run.  Given the niche nature of markets for clearwood lumber grades, it might be expected that the demand will be somewhat more inelastic, indicating that the quantity of clearwood consumed is less responsive to relative price changes in the short-term, but also that prices will be more sensitive to structural market shifts. Timber supply shifts likely account for much of the relative price instability observed for the higher-valued clearwood lumber products.
In addition to the movements of relative prices, this study found that the price premiums paid for clearwood grades of lumber (in 1995 dollar terms) were substantial and quite stable when measured as the prevailing differences from the overall softwood lumber market.  In real terms, average price premiums for #3 Shop grade lumber over the baseline product ranged from $159/mbf for southern pine and $166/mbf for Douglas-fir to $280/mbf for ponderosa pine. Real price premiums for C & Better Select lumber averaged $405/mbf for southern pine and $1,563/mbf for ponderosa pine.  Finally, real price premiums for Moulding grade lumber were $692/mbf for southern pine and $1,196/mbf for ponderosa pine.  For all the clearwood lumber species/grades combinations with sufficient price data, the real price differences were found to increase modestly over time, with the exception of Douglas-fir Moulding and Better grade lumber, where a slight downward trend in real price difference was observed for a shorter, three-year data period.  The persistence of these price differences over the 1989-95 market cycles and abnormal supply disruptions would indicate that clearwood grades of softwood lumber are effectively differentiated in the perception of end users and the price differences are not a simple result of transient market disruptions.
The analysis also determined the spread of real prices between commodity and clearwood lumber grades within individual species of lumber.  Where it is possible to alter the grade yields through intensive forest management, the spread of real prices is highly relevant as more clearwood replaces lower-valued grades in the total lumber recovery volume.  Real price spreads remained stable during the 1989-95 period for the clearwood grades, with slightly positive trends observed for all products with the exception of Douglas-fir Moulding & Better grade lumber.
Conclusions
This study found that clearwood lumber is a differentiated product for which end users are willing to pay a substantial premium.  Those respondents who utilize clearwood lumber as a raw material input in their manufacturing process indicated that they value reliability of supply, price, and price stability over timber quality.  This would seem to indicate that manufacturers cannot, or will not, continue to accept higher relative prices and rapid price fluctuations.  The lumber price trend data indicate that softwood lumber products are highly differentiated in terms of perceived market value, reflecting the unique attributes of specific lumber grades that are valued by end users.  The price analysis supports the conclusion that price-induced substitution is an important driver behind the convergence in relative prices between the higher grade ponderosa pine lumber products and the overall softwood lumber market, but that clearwood grades of lumber have generally maintained their relative price differentials.  However, the price analysis and industrial survey results suggest that, for more and more manufacturers, clearwood lumber attributes may be available from lower grade lumber products and substitute products.  The survey results clearly indicate that many manufacturers are switching to substitute products to meet their raw material needs and provide price stability for their manufacturing operation.
Based on these results, lumber producers and plantation managers can better assess whether to adopt management practices that emphasize the production of clearwood lumber for high-value niche markets, or whether they might be better off focusing on the production of commodity grade products.  Given the significantly different cost structure associated with each of these production strategies, the results of this study can help managers determine which strategy is the most cost effective based on the characteristics of the market segments they are serving.
 

​Executive Summary
This paper employs graphical analysis, simple statics and an econometric model to examine the impacts of exchange rate on consumption, production, prices and bilateral trade flows I the Canadian—U.S. lumber market.  Based on annual data for the 1950-1983 period, the econometric model is comprised of a U.S. demand relation and supply, capacity, and stumpage price relations for three U.S. regions and Canada.  Analysis with the model indicates short-term elasticities with respect to exchange rate (expressed as $C/$US) of less than .1 for U.S. consumption, roughly -.3 for U.S. delivered price and .5 for import volume.  The elasticity of Canadian market share was found to be in the range of .4 to .6.  The greatest Canadian market share expansion (from roughly 20 to 28 percent) and rise in U.S. dollar strength occurred during the years 1975-1979.  An hypothetical simulation of this period, under the assumption of no increase in the nominal exchange rate, yielded a reduction in Canada’s 1979 share to 25%, roughly a 40 percent reduction in share growth rate.  Both elasticity and simulation results indicate that exchange rate has been an important, but by no means the sole, factor in recent expansion of Canada’s share in U.S. lumber markets.

​This report presents the results of an investigation into softwood lumber grading systems used in Europe with an emphasis on systems used, or proposed, for international trade transactions.  The report also presents comparisons and approximate cross-references of these systems with North American grades.  This involves the use of previously published comparisons as well as new material developed during the course of this study.  The study also briefly examines the nature of the European softwood lumber market and its future prospects.  The information presented in this study represents a step in the direction of improving the North American manufacturer’s understanding of Europe.
 
The information contained in this report relied principally on a search of available literature in the University of Washington Library system, reports sent in response to out letters to various European testing and research organizations, and conversations with representatives of the American Plywood Association and Western Wood Products Association.  Consequently, interpretations regarding historical background and current status of lumber grading practices in Europe may be limited by not having the opportunity to observe practices first hand or to converse with firms heavily involved in European trade.  It is believed that the information contained in this report is a fairly accurate description of major events and combined with the grade cross-reference will be useful to North American producers.