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Authors: Ivan Eastin, Indroneil Ganguly, Daisuke Sasatani, Larry Mason and Bruce Lippke
Investment by value-adding wood industries is critical to sustaining forestland ownership. An increasingly complex array of forest owners and investors suggests a business climate that views forests as a financial, rather than an industrial, asset. However, maintaining the ecological, environmental and economic health of the forests in Washington requires a vibrant and competitive forest products industry. The lack of a diversified and competitive forest products industry to process the logs, small diameter timber and thinnings removed from the forest undermines the ability to manage forests in Washington in a sustainable manner and reduces the range of management options available to forest managers in the state. The lack of competitive markets for intermediate forest products derived from forest management operations undermines the economic rationale of forest management, adversely affects forest health and ultimately results in increased fire risks. At the same time, the forestry and forest products industries make significant contributions to the economy of Washington State, particularly in rural, timber dependent communities.
The analysis of the economic data suggests that the forestry and wood products manufacturing sectors have played an increasingly important role in the economy of Washington State since 2001. Not only did this sector provide over 45,000 jobs in 2005 but it also generated approximately $16 billion in gross business revenue, paid out over $2 billion in wages and over $100 million in tax receipts. As a result, the forestry and wood products sector of the state economy employed 1.43% of the workers in the private sector in Washington, accounted for 1.8% of the total wages paid within the private sector and generated 3.2% of the gross business income within the private sector.
The sawmill industry in Washington state suffered through a tough period between 1987 and 1993, much of which can be attributed to the 1990-1991 recession and the loss of federal timber as a result of the listing of the spotted owl as an endangered species in 1989. Between 1987 and 1993 softwood lumber production in Washington decreased by 23.5% as 45 sawmills closed and almost 1,400 jobs were lost. Industry consolidation ensued throughout much of the past decade and by 2005 the number of sawmills had declined from 217 (in 1994) to 128. Much of this decline in sawmills can be attributed to the closure of older, inefficient sawmills that relied on the large, old-growth logs coming from the federal forests. Despite the huge drop in sawmills, employment in the sawmill sector actually increased from 7,721 to 8,565 between 1994 and 2005 as larger more efficient sawmills were built to replace the older mills being closed.
The plywood industry in Washington, previously one of the largest in the US, has been in decline since 1962. The number of plywood mills has dropped from 35 to 8 during this period although plywood production has only declined from 1.8 billion square feet (3/8 inch basis) to 1.1 billion square feet (3/8 inch basis). As seen in the sawmill industry, the closure of smaller, inefficient mills has been offset to a degree by the establishment of larger, more efficient plywood mills. Annual production per mill in 1962 was just 52 million square feet whereas this has jumped to 137 million square feet in 2005. It is important to note that as the end-use market transitions from plywood to oriented strand board (OSB), there are no OSB mills located in the state of Washington. The challenge for the structural panel industry is to successfully make the transition from plywood to OSB.
The Washington pulp and paper sector is the second largest following wood products manufacturing. In addition to its importance within the economy, this sector also plays an important demand role within the forest products industry. Pulp and paper companies are important consumers of lower quality pulp logs as well as providing a demand for by-products from other forest products industries such as sawdust and planer shavings from the sawmill industry. Given the cost structure of the sawmill industry, lumber manufacturers often break even at best with their lumber production and it is the sales of their by-products that provide them with an operating profit. Thus this industry segment is particularly important to the health of the sawmill and logging sectors. From a strategic industry perspective, it is extremely important that this industry remain healthy and viable within the state of Washington.
The regional inter-industry econometric model called the Washington Projection and Simulation Model (WPSM) has been used to estimate that in 1992 there were 7.7 direct jobs and 32.3 indirect jobs linked to each million board feet of timber harvest in Washington. In 1994, it was further estimated that 29.7 Washington jobs would be lost for every $1 million in tax increases to replace lost trust revenue from reduction in timber harvests from the state forestlands. Further public benefits derived from DNR timber sales through the generation of state and local, and federal tax revenues were calculated to be 11% and 19% respectively, of the Gross State Product, in 1996.
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Authors: Jean M. Daniels and John Perez-Garcia
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.
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Authors: John Perez-Garcia, J. Kent Barr, Jean M. Daniels
The study produced an assessment of the lumber manufacturing sector. It analyzed the changes in this sector and its relation to timber harvest levels. The study's objective was to determine whether Washington 's sawmilling sector can expand or not, given a projection of future timber harvest levels.
We analyzed the Washington State Department of Natural Resources mill surveys from 1968 to 2002. The analysis first defined five timbersheds in western Washington and two timbersheds in eastern Washington . The study then focused on an analysis of capacity utilization by the sawmilling sector. We produced trends of utilization rates and discussed potential reasons why the rates have changed over time and among timbersheds. Periods of high prices were related with periods of high utilization rates, with exception. During the 1980's, there occurred a shutdown of capacity that improved the average utilization rate for the sector following a collapse of high lumber prices in 1979. Currently, the average utilization rate is at historically high levels as one might expect given the strong U.S. housing sector. Lumber prices have recovered from a short period of lower prices, and they are currently at near-high levels providing impetus to the high capacity utilization in the sawmilling sector. We also found differences in the utilization rates among the timbersheds, and they are presented in the body of the report.
We followed the capacity utilization analysis with an assessment of log consumption. Log use by the sawmilling sector within respective timbersheds was compared with the timber harvest level. Except for the South Coast, Southwest and eastern Washington timbersheds, sawmills were now, by far, the main consumer of the harvest level. Substantial amounts of saw logs continue to move from one timbershed to another. In 2002 approximately 600,000 mbf of timber was transported across timbershed boundaries to be used by sawmills in other timbersheds. Timber heading to Oregon continued to be significant, and logs imported from British Columbia were now occurring.
We examined the potential supply of timber for western Washington timbersheds. The complexity of projecting uneven-aged stands found in eastern Washington limited the analysis to western timbersheds. While the projection was considered preliminary, it was a useful first step to gauge the wood availability required to maintain or expand the sawmilling capacity in western Washington. Further sensitivity analysis is required but was beyond the scope of this phase of the research. The projections indicated that current harvest levels can be sustained, and in the South Coast timbershed, the harvest level can be increased over the next several decades. There did not appear to be any indication that the harvest level will fall below the current level of 2.8 billion board feet. Timber inventories in all timbersheds revealed a significant growth in volume in older age classes given the projected harvest level suggesting there exists the potential for a higher, future harvest level if these forested lands were made available for timber production.
Our projections assumed current harvesting conditions will continue to exist into the future. One conclusion we draw from the analysis is that the biological potential of the timber land itself will not likely be a constraining factor in future timber harvest levels. Rather, regulatory and land-use factors are more likely to impede a harvest level that coincides with the biological potential of the forested lands.
There are important policy implications from our findings. Lumber manufacturing in Washington has become the principal consumer of wood fiber in the state, and we projected, given their current high rates of capacity utilization by existing mills and the biological potential for increasing harvest levels, that lumber manufacturing can expand. While Washington 's forest products sector has changed substantially due to the significant decline in timber harvest level over the past decades, the sawmilling sector has maintained its level of use of the harvest during this time. There has been a substantial decline in the number of sawmills, and the volume of log that crossed timbershed boundaries continues to be significant, but still, lumber manufacturing, a sector that consumed a small percentage of the log harvest level 20 years ago, is now the predominant end-user of logs harvested in Washington, and it is in a position to grow. The change in the composition of the forest sector was not driven by a substantial growth in lumber manufacturing but rather the decline in timber harvest levels and its impacts of the other forest sectors in Washington, primarily log exports.
The lumber manufacturing sector has not been without its share of change however. There has been a consolidation of milling capacity, and with it, a reduction in the amount of labor employed by sawmills. Lumber mills in Washington have transitioned from a large number of smaller-sized mills capable of utilizing a wide range of log sizes to a consolidated sector that utilizes smaller logs with more capital and less labor. There is also much less mill-type diversity within the sector.
We conclude that harvest levels in the future are such that they should allow for lumber manufacturing to expand. We support this conclusion with the facts that capacity utilization rates have been high during the past decade and that timber harvest levels in Washington have adjusted to a lower level than in previous decades. The harvest level simulations suggested that current harvest levels are sustainable into the future over a couple of rotations. The simulations assumed conditions today will continue into the future. For this reason, further work is needed to assess changes in land-use patterns and regulatory constraints that may impact future timber harvest levels from Washington 's forested lands.
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Authors: Guy C. Robertson and Bruce R. Lippke
Harvest Declines and Revenue Growth
In spite of sharp declines in harvest volumes in the 1990s, Washington State’s forest products sector continues to generate substantial income for the state and its inhabitants. At approximately 4.1 billion board feet, Washington State’s 1994 timber harvest was 33% lower than the 1965-94 annual average of 6.1 billion board feet and was the lowest level reported during the 1965-94 time period. Total business revenue generated by the state’s wood products sector in 1994 was approximately $9.1 billion (revenues reported in real 1994 dollars). In contrast to the harvest volume, this revenue figure exceeded the 1960-94 annual average of $8.3 billion by 9%. The state’s forest products sector generated, on average, a total of $2,196 revenue per thousand board feet (Mbf) harvested in 1994--the highest figure ever recorded. While this record level is the partial result of sharp increases in real wood product prices due to recent supply constraints, trend analysis shows that growth in revenues per harvest volume prior to 1990 was also relatively robust. While yearly growth for the 1965-94 period was estimated to be 2%, that for the 1965-89 period was estimated at 1.7%. Washington State forest product firms have been successful at garnering increased revenues using fewer raw material inputs. This has been very important in mitigating at least some of the impact of recent harvest declines in the region.
Increases in the Real Price of Wood Products
The purpose of this report is to identify the primary sources of revenue growth for the Washington State wood products sector. While increases in the real price of wood products has certainly been important in the last few years, they should not be overemphasized in the explanation of long-term revenue growth. Indeed, the trendline for Washington wood products prices (weighted by 1965 product shares) is essentially flat, and, in spite of sharp price increases since 1991, current levels are well below peaks occurring in the late 1970s. Structural change, particularly a shift to greater secondary manufacturing, and increases in product recovery from log inputs are more important in explaining increases in revenue generated per unit volume of harvest.
Total revenue from secondary manufacturing was $2.6 billion in 1994, 142% higher than the 1965 level, with much of the increase occurring in the last ten years. Similarly, secondary manufacturing’s share of total wood product sector revenues increased from 17% to 29% over this same 29-year period. While many secondary manufactured products require clear wood or other high quality characteristics, raw material inputs comprise a relatively smaller proportion of total product value, and the industry is less dependent upon the gross volume of harvest than lumber, paper or log exports. As a result, the strong performance of secondary manufacturing in both domestic and export markets represents a particularly promising adaptation to decreased harvests.
Another source from which Washington State producers have been able to generate increasing returns from a declining raw material base is the increase of exports, thus taking advantage of the export premiums associated with the trade in logs, lumber and other wood products. Log exports have constituted a major business since the early 1970s, fluctuating between $1.0 and $2.5 billion since that time. 1994 log exports totaled $1.4 billion, a level slightly higher than the 1965-94 average but significantly less than the $2.5 billion record high in 1979 or the recent peak of $1.7 billion in 1988. Lumber exports were slower to develop and remain less significant than log exports. The record level of $494 million was reached in 1988. Since that time, the percentage decline in lumber exports has exceeded that in log exports, with 1994 lumber export revenues falling to $365 million. Japan remains the most important foreign consumer of Washington State wood products. The Japan wood trade began with a heavy emphasis on high-quality old-growth logs but, more recently, has shifted to mostly second-growth products. Given that recent harvest restrictions fall most heavily upon these higher log grades, it is not surprising that exports of both logs and lumber have been in decline since 1990 in spite of rising prices. In contrast to log and lumber exports, exports of secondary manufactured goods have more than doubled since 1989, and, at $232 million, 1994 revenues for this group of products are rapidly approaching those of lumber exports.
Efficiency Gains in Raw Material Conversion
Efficiency gains in the conversion of wood raw materials to final products has been another important contributor to Washington wood products manufacturers’ increasing revenues in spite of declining wood inputs. Lumber overrun (a measure of the amount of lumber produced from a given unit of log input) is estimated to have increased approximately 27% since 1960, and the increase in the amount of pulp produced from a unit of log input is estimated to have increased 35% since 1970. Likewise, efficiencies in plywood production (a significantly reduced part of Washington State’s wood product mix) are estimated at 40% since 1960. Taken together, this means that the wood products sector requires approximately one third fewer logs to produce the same volume of output relative to the 1960s.
Declining supply, increasing conversion efficiency, and greater export premiums could all be cited as reasons for rising timber prices (or “stumpage prices”). At $441/Mbf, 1994 stumpage prices were over four times the 1965 level and close to three times the 1986 level. The price that log buyers can pay for timber reflects the price they receive for products sold less processing costs--a residual price. Due to the nature of the stumpage price as a residual price and the volatility of wood products markets in general, the high variance in stumpage prices is not surprising. In particular, the sharp increases in stumpage prices since the late 1980s provide ample evidence of increasing supply constraints and conform with general observations about recent market developments. Prior to 1989, the positive trend in the price of timber was more directly related to other value increases in the use of wood.
Employment and Productivity
Direct employment in the wood products sector peaked at 72 thousand workers in 1978. Since that time employment has declined to 54 thousand workers, with most of this fall occurring during the severe recession in the wood products industries in the early to mid 1980s. Though falling employment is expected from declining harvests and from increased labor productivity, shrinkage in the labor force was significantly less than the fall in harvest. Contrary to expectations given productivity increases, the total number of employees per Mbf of timber harvested shows no discernible trend. The most important factor underlying this is the increase in secondary manufacturing and similar value-added activities which use more labor per unit volume of log input. Total 1994 Washington State employment (direct, indirect and induced) generated by the wood products sector is estimated at 194 thousand employees. Technology gains are usually associated with increased capital intensity (i.e., more machinery per employee) and thereby more purchases of outside goods and services. This will result in increased indirect employment partially offsetting losses in direct employment. Evidence suggests that the ratio of total employment to direct employment in the wood products sector has increased approximately 6% over the last decade.
Washington State wood products producers have made steady gains over the last three decades in the amount of revenue generated per unit of resource harvested. These gains have helped to mitigate the impacts of recent harvest declines and belie the image of the wood products sector as an overly mature or dying industry. While real price increases in wood products have been partially responsible for revenue increases, especially in the last few years, increases in secondary manufacturing and exports have been more important in the long run. Because secondary manufacturing is both more labor intensive and less reliant upon gross volumes of timber harvest, expansion in this product category represents a particularly promising development. The traditional export categories of logs and lumber have relied more heavily upon the availability of high quality stumpage, particularly old-growth. The maintenance and further expansion of revenues in these categories will depend upon the management of the state’s second-growth forests and marketing efforts to gain increased foreign acceptance of products produced from them.
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Authors: John M. Dirks and David Briggs
This report provides a descriptive account of the secondary wood products manufacturing industries in Washington State. Secondary industries are defined as those adding value to standardized commodity wood or wood-based materials through the production of specialty finished or semi-finished products. This study focuses upon six major product groupings--engineered building components, mill work remanufactured lumber products, pallets, cabinets, and furniture--based upon the number and types of firms responding to the questionnaire. Primary data for this study were collected using a mail questionnaire, administered during the summer of 1989. Questionnaires were returned by 33% of the firms receiving them. Additional employment and business income information used in this report was obtained through published state agency data.
The Secondary Industries
The industries assessed in this study contribute significantly to Washington State's economy, employing 13,200 people in the state and providing $1.2 billion in gross business income to the over 630 firms operating in this sector in 1988. Approximately one in five jobs in wood products and associated industries in Washington, including the paper and paper sector, are found in the secondary solid wood products industries, while about 1 in 8 gross business dollars we generated by this sector. Excluding the pulp and paper and logging industries, .39% of the employment and 28% of the income in wood products processing was generated by the secondary manufacturing industries in 1988. This collection of industries produced nearly the same amount of business income as the logging sector during that year, but directly employed nearly 25% more people.
The firms in these industries are diverse, from small shops of highly skilled woodworkers crafting custom furniture or cabinetry, to larger facilities remanufacturing lumber into cutstock, resembling sawmills both in productive capacity and in size. Almost all of the secondary manufacturing firms produce specialty rather than standardized commodity products. Small business activity is critical in this sector. None of the firms returning questionnaires employed more than 500 people, and 86% of the business establishments in this sector have fewer than 50 employees. The secondary manufacturing industries are fragmented in terms of products manufactured and company size. Washington firms tend to be geographically concentrated, however, in or around the states urban areas. Ninety percent of the 150 largest secondary manufacturing companies are located in Washington’s manufacturing and finance counties.
An evaluation was made of each manufacturing group's use of wood raw materials produced from Pacific Northwest tree species versus materials imported from other areas. Groups seemingly most dependent upon Pacific Northwest raw materials include, in decreasing order: pallet and container manufacturers, structural component manufacturers, remanufacturers, and millwork producers. Regional raw material supply problems were evident in the survey responses; of the 58 manufacturers responding from these four categories, one half of them (29 of 58) cited raw material supply or cost as a serious problem.
The other two groups delineated in the study, cabinet and furniture manufacturers, were more dependent on exogenous wood sources, including composite materials such as particleboard as well as eastern hardwood veneers and hardwood component stock. Less than one fifth (13 of 67) of firms in these two groups regarded raw material supply or cost as a serious problem affecting their business. Regional wood supply problems may not be affecting these groups as much as they do other manufacturers. The price premiums paid for higher value added products such as furniture and cabinetry may also result in raw materials being a lower relative variable cost compared to labor costs incurred in manufacture, and thus partially explain why raw material supply or cost is generally considered a lesser problem in the cabinet and furniture industries. The furniture and cabinet producers reported the two lowest relative average monthly raw material costs of all manufacturing groups, while reporting the two highest relative labor costs.
Technology was perceived to be changing at a moderate rate by 70% of the survey respondents. Major constraints to new investment were the availability or cost of capital, the high risk of capital investment, and availability or cost of skilled labor. Over 70 percent of the respondents listed at least one important piece of equipment they were planning to purchase over the next two years. A surprisingly large amount of used equipment is bought and sold by firms in the secondary manufacturing industries; used equipment comprised over 33% of the equipment purchased during the two years preceding the survey.
The customers targeted for sales by secondary wood products manufactures vary across the delineated groups. Remanufacturers of specialty lumber products tend to sell their products directly to other industrial manufacturers and to wholesalers or distributors who do not stock their products. Millwork manufacturers S primarily to stocking wholesalers or distributors, and to a lesser extent to building contractors. The cabinet industry, in contrast, relies upon direct flies to building contractors for most of its sales volume, and also up direct flies to retail customers. Furniture manufacturers sell through wholesalers or distributors who do not stock their products, and also directly to retail customers. Pallet and container sales are primarily to retail customers and to other industrial manufacturers, while manufacturers of wood structural components sell directly to building contractors and to non-stocking wholesalers or distributors.
The secondary manufacturing industries in Washington can be described as relatively under-promoted personal selling efforts by sales staff and distribution channel members may be perceived as more important manufacturers than direct promotional efforts, evidenced by the frequent use of business cards and word-of-mouth promotional tools. Product brochures, trade shows, and the efforts of industry associations are lesser used means of promotion. Only about one-fifth of the respondents reported using media advertising, advertising in trade journals, or direct customer mailings.
Fifty percent of the firms surveyed (81 firms) considered their principal target markets to be within the Pacific Northwest; 41% (67 firms) consider domestic US markets outside of the Northwest region to be important to them. International trade does not appear to be a key activity for many of the responding companies. While 38% of the survey respondents reported using imported wood raw materials and 24% exported products in 1988, only 14 firms, or 8%, considered export markets principal markets. No company exported more than half of its sales volume. Japan was the country purchasing products from the greatest number of companies in the sample; export volume and value levels were not measured in this study. Forty-seven firms (28%) purchased Canadian wood for production of their products, while only 12 firms (7%) reported 1988 exports to Canada.
Problems and Concerns
Problems and concerns facing the secondary wood products industries in Washington were evaluated through survey responses and open ended questions. Problems rated as the most serious include government taxation, raw material supply or cost, the high cost or limited availability of capital, labor supply or cost, ant government restrictions or policies. These problems may all be characterized as business environment factors existing outside of any one firm's control. Several company-internal factors such as quality control problem financial difficulties, the high cost of new product development, and possessing an outdated production facilities and sales and marketing problems were also rated relatively important, but by fewer respondents. Other company-internal problems rated as relatively unimportant by the majority of respondent companies include lack of computer skills, distribution problems, difficult labor relations, limited wood processing expertise, and being located too far from major markets.
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Pacific Northwest Hardwoods Capture International Attention: An Analysis of the Washington State Hardwood Industry
Author: Hakan Ekstrom
Washington State Hardwood Sawmilling Industry 1990
Hardwood lumber production in Washington grew 93 percent over the period 1980-90. This compares with softwood lumber growth of 24 percent and a national growth rate for hardwood lumber production of just 21 percent over the same period. Hardwood species like red alder, which were until recent years considered undesirable weed species in the softwood forests of the Pacific Northwest, have increased remarkably in value and now provide financial returns as great as softwoods. The low level of historic interest in hardwoods has resulted in limited knowledge about the northwest hardwood resource and Washington state hardwood lumber producers. These facts together with a growing worldwide demand for hardwoods motivated a study by the Center for International Trade in Forest Products (CINTRAFOR) at the University of Washington to understand the changing capabilities of Washington hardwood lumber producers and their markets.
Washington Hardwood Sawmilling Industry
The Washingt6n hardwood sawmilling industry of 1990 was twice as large as in 1982, with direct employment of 850 people. The industry consumes approximately 340 million board feet of timber, of which 75 percent was manufactured into lumber and pallet stock. The remainder was utilized for pulp chips. Washington hardwood production represents almost eight percent of the total lumber production in the state and is over 2.5 times the hardwood production in Oregon. The nine major hardwood sawmills, representing about 98 percent of Washington's total hardwood production, are all located west of the Cascades in rural communities. The primary species used were western red alder (Alnus rubra Bong.) and big leaf maple (Acer macrophyllum Purch.).
Since most of the raw material for the industry, about 74 percent, was purchased from private timber owners and only one percent from federal timber sales, preservation of northern spotted owl habitat--most prevalent on federal lands--should not substantially impact hardwood timber availability.
Swedish Hardwood Sawmills
The author has also carried out similar research in his home country, Sweden. With a 'mailer production, Sweden has ten times as many hardwood mills, most of which produce the higher-valued secondary manufactured products, used for furniture, parquet flooring, cabinets or mouldings. While the Washington state hardwood sawmills are more quality-oriented than many of their softwood counterparts, they are still far from the value-added manufacturing facilities observed in Sweden.
Hardwood Markets for Washington Sawmills
Hardwood markets do not share the characteristics of softwood commodity markets. Quality and customer service attributes are often more important than price. Mill owners and managers said that the most critical production features were the ability to produce kiln-dried, high quality, accurately graded planed or surfaced lumber. A mill's reputation, its ability to deliver on time, and its personal relationships with its customers were rated more important than competitive pricing and the ability to provide custom orders. Competitive pricing and custom orders were considered more important by a few of the mills, however.
Hardwood markets, growing faster than softwood markets, have also shown greater stability with little change in demand with the boom and bust housing cycle. Alder has been discovered as a valuable species, and will play an increasing role in rural timber-dependent communities. While hardwood chips are also valuable for pulp and paper production, the higher-valued furniture, cabinet and interior applications, will set the pace for much of the future industry development.
Only about seven percent of the Washington-produced hardwood lumber is utilized by local secondary manufacturers, with almost no secondary manufacturing in local lumber mills. California and Oregon firms consumed large amounts of the lumber, however, and exports take about 36 percent of the volume. The foreign market is very important for the industry, since export customers usually purchase the higher quality products. While Japan is the largest market, recent growth in European markets has been dramatic.
The recognition of alder as an important commercial species has resulted from its increased worldwide use in higher- valued applications. Higher-grade lumber was used mainly for furniture where the wood was visible (21%), and for cabinets (22%). Upholstered furniture (17%) together with pallets (33%) were the principal end products for low-grade hardwood lumber. Small quantities were also used for mouldings, toys, and for the do-it-yourself market.
The increased demand for red alder lumber has influenced its price, especially for the higher grades. Between 1988 and 1990, the price of kiln dried 4/4" lumber of the highest grade increased approximately 25%, from $766 per thousand board feet (MBF) to $955 per MBF.
Red Alder Exports from the US
In recent years, Pacific Northwest hardwood species, primarily red alder, have been elevated from positions of relatively low value into commercially important wood species in world trade. Red alder, only processed at Oregon and Washington sawmills, was the number three hardwood lumber export by volume from the United States in 1990, behind the species groups white oak and red oak. In log form alder was the number one hardwood species exported from the U.S. in 1990.
There has been a substantial increase in the export of alder lumber during the last ten years. In 1981 the export trade of alder lumber totaled only two million board feet (MMBF), while ten years later in 1990, the trade had reached 56 MMBF.
The most important single market for alder lumber during the last decade has been Japan, even though its share has been declining recently. The Japanese market accounted for 95 percent of the lumber exported 1981, while in 1990 its share had decreased to 55 percent.
The new and growing market has been in Europe, which now purchases about 25 percent of the alder lumber exported. The main importing countries in Europe are Italy, Germany and France. The total alder export to Europe during 1990 was 13.8 MMBF. While the Washington hardwood sawmills have increased their lumber production by 50 percent since 1985, the export of alder lumber, which predominately originates from Washington State, has increased by almost 700 percent.
Washington Hardwood Supply, Growth and Harvest
The hardwood timber resource in Washington is growing, with the annual cut at about half the annual growth. In the region west of the Cascades, 15 percent of the growing stock on timberland is composed of hardwood species. Red alder was the most common species (67%) and, together with big leaf maple and black cottonwood, accounted for 95 percent of the hardwood volume. In the Southwest region of the state, the annual harvest of hardwoods was 7 MMBF on state lands, which is only ten percent of the total annual growth. This situation is in contrast to forest industry owned land in the same region, where the removal rate is 26 percent higher than the current growth rate. The potential for expansion exists. It may be possible for the Washington State Department of Natural Resources to increase the harvest of hardwoods from the land it administers and become a bigger and more important timber supplier for the hardwood sawmills.
Management of Hardwood Stands
Managing a hardwood stand, whether pure or mixed with conifers, can substantially improve the quality and increase dimension yield The alder regeneration cycle is shorter than that of softwood species. With intensive management of red alder, which is a fast growing species with good self-pruning, high quality sawlogs and peelers can probably be grown in 28 to 37 years.
It is important to inform forest owners, loggers and contractors about the value of hardwood logs and about the hardwood industry that is prepared to pay for the sawlogs.
If too many hardwood logs are cut and chipped today, the supply of sawlogs will be limited in the future. As this study found, the economics have been rapidly changing, making it pay to grow alder for higher-value markets.
Key Factors for Future Success
There is little doubt that Washington state hardwood sawmills can be successful in the future. It is the opinion of this author that it is necessary to address the following key areas to yield long-tam benefits for the companies in this industry:
* Develop closer contacts with the end user
* Increase value-added production.
* Develop a skilled and loyal labor force.
* Intensify quality control.
* Increase research and development.
* Build awareness among forest owners of the value of hardwood.
* Maintain a secure and stable timber supply.
Future hardwood products
It is important for the sawmills to focus on quality control, to utilize the wood to a higher-degree and to produce a higher valued product than commodity lumber Lower-grade lumber products, No.1 Shop to No.3 Shop, comprise about 45 percent of the hardwood sawmills production; these grades should be further utilized. No.1 Shop lumber, together with No.2 Shop, which is the most difficult grade to sell today, could be remanufactured for cut stock, edge-glued panels, finger-jointed and edge-glued components.
Most of the mill managers interviewed indicated that the future success of the industry would rely more heavily on value-added products. Another broad area mentioned was the production of more custom-cut products for the furniture and cabinet industries.
Planned investment, however, generally fell in the area of upgrading primary log breakdown facilities, indicating that many mills must concentrate limited investment dollars in more efficiency at the headrig just to keep up with industry standards.
With the cost of capital rated as the second largest production problem next to labor costs, mills will be constrained in their ability to invest in value-added production.
Most hardwood lumber produced in Washington is leaving the state. Only seven percent of the alder lumber produced is currently utilized by secondary manufacturers in the state (pallet production not included). The volume of hardwood lumber products flowing out of the state for further manufacture may suggest an opportunity for Washington remanufacturers and secondary manufacturers to expand their use of alder and other local hardwood species.
The labor force
To be more competitive, the United States, with higher labor costs than many other countries now producing commodity lumber, should concentrate on manufacturing high-quality products. Low-quality products and “bulk-type” production can be made less expensively in countries that have lower wage structures.
By taking measures to develop a flexible and knowledgeable labor force, performance and recovery rates can be high. The skill level of the labor is particularly important when customers specifications may be more demanding and there are more custom-made products and value-added processes required.
Japan is the largest export market for alder lumber today, and will probably continue as a large and important market, although its share of the total alder exports from the U.S. will decrease. The new and expanding market is in Europe, especially Germany, as producers substitute alder and other temperate species for tropical timber imports, mainly because of policies influenced by the European Green Movement. If sawmills in the Pacific Northwest can deliver high quality lumber and components and follow and analyze customer demand, the European market will be much more important in the future.
Restrictions and Opportunities
Hardwood sawmill managers said that their greatest concern for the future was the timber supply. While currently not a problem for most of the mills, timber quality and availability were foremost on the minds of those in the industry when asked about future critical issues.
Availability of timber is a major concern of the purchasing mills, as much of the hardwood saw timber is a byproduct of softwood timber harvest, and the softwood harvest is expected to decline. State and federal regulations regarding timber supply as well as environmental issues were the top three overall concerns facing mill-owners. Actions by the Washington State Department of Natural Resources with respect to hardwood sales, timber availability, and environmental protection were of great importance to a majority of those interviewed.
Besides the problem of limited investment dollars and the cost of capital, the issue for many local hardwood producers may become how to procure sufficient timber supply to maintain consistent quality and mill production. These are the main restrictions but there are also opportunities for the hardwood sawmills today.
Red alder represents an under-utilized timber resource. It is a fast growing species, it has excellent wood characteristics, and it has a growing demand in domestic and international markets. This all contributes to making red alder a potentially important species for forest owners, for sawmills and for secondary manufacturers in the Pacific Northwest.
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Author: Daniel W. Bagger and Thomas R. Waggener
Forest Products is one of the major industries in the Washington State economy. In 1984 the timber industry employed 56.4 thousand people, and generated gross revenues in excess of 3 billion dollars (U.S.). During the last several years, this industry has been experiencing a transition as both domestic and foreign markets have changed dramatically. Continued competition in both product and factor markets has increased the State’s involvement in overseas markets, especially those in the Pacific Rim countries. Many of the technological changes and industry renovations taking place within the forest products industry are focusing on these international markets. Legislative and government organizations at both the State and Federal levels are seeking to encourage and implement free trade policies in forest products as a means of expanding the natural economic benefits of trade. This brief overview of the forest products industry in the State of Washington seeks to identify the major features of this industry and the current levels of international trade in forest products. This overview has been prepared by CINTRAFOR in cooperation with the Washington State Department of Trade and Economic Development and the Washington State Department of Natural Resources.