Shifting from Timber Supply to Timber Harvests

January 21, 2015

Shifting from timber supply to timber harvests and related processing: Why has this industry been historically concentrated in the Northwest...e.g. why not ship logs to markets and process them there? In 1980 we did that with almost 40% of Washington's timber harvest, but after the 1980’s log exports declined dramatically However, in the last few years they have increased again, but not to levels seen in the 1980’s. Historically, processing of output from the timber economy has been concentrated in this region, infact in local areas where timber is harvested. Manufacturing location principles Assume desire to max. revenues---net: profit. Cost factors: labor input factors energy, raw materials, services capital, taxes...other? Revenue: Spatial: transport costs on inputs/outputs. If price is fixed, and profits are to be maximized, then cost minimization is the key strategy... Spatial variation in cost/revenue elements? Key role of transport costs on inputs/outputs. their cost per unit weight their value For resource oriented industry: tr costs on inputs greater than tr costs on outputs. For market oriented industry: the reverse For footloose industry: a balance ------Forest products: a quintessential resource oriented industry: typically only about 40-45% of the log delivered to the mill ends up as lumber/plywood. 30% of the standing volume of a typical tree is lost in the forest as trimmings. Historically, little was done with the residue in the woods; today that is still the case. Mill waste has been used as fuel for long periods: " hog fuel," but historically it was also just dumped as landfill. Today we utilize almost all of these residual materials. January 21, 2015

Oregon: 1955/57: Bark 16% Sawdust: 13% Coarse Residue: 17% Shavings: 8% total: 54% net: lumber: 46%. recent DNR data show lower recovery of primary product ratios, probably due to smaller diameter logs. historical patterns: lumber role of technological change in logging and transportation: initial: skids then: steam donkeys/trains later: internal combustion leading to roads... now: balloons/helicopters: gradually increasing the log supply area.

Concomitant relocation of mills: Initial location on tidewater export links to S.F/California Railroad era: early phases - local log supply by rail, then exported by ship Arrival of transcontinental/exhaustion of coastal timber supply - mills tend to relocate to the interior, tracks aligned to help log out the early bottomlands in the river valleys where it was cheap to build routes classical rail oriented era - rail export to the eastern U.S., log railroad and truck supply to mills. more recent shifts: changes in timber supply in W./ Wn. & Wn. Oregon: initial depletion of lowland resources in W. Wn., shift gradually south to Oregon; by Great Depression (ca. 1930) Oregon overtakes Wn. as the nation's leading producer.

development of plywood: Invention of technology about 1900, first burst of mills in SW Wn. in 1910-1930; January 21, 2015

Initial dependence on "peeler logs," large diameter straight old growth logs. Mills were located close to such supplies; processing losses were similar to Lumber. However, today small diameter logs can be peeled into veneer. pulp: initially using species not suited to lumber, esp. hemlock, which is not straight grained. Later technologies have allowed higher values uses for lower value species. Markets lumber/plywood: Early railroad orientation: displacement by PNW producers of the "Lake States." They heyday or Northwest Lumber Barons: 1900- 1940's. Development of competition: Jones Act B.C. Producers Southern producers

(1) Jones Act: limiting american intercoastal shipments to American bottom vessels: impact on coastwise trade: Trends from 1938/1954. vast decrease in shipments to NE., slack picked up by interior markets (2) Canadian production: postwar boom, continuing to today: old alignment: Commonwealth markets. New alignment: the u.s. Market: still a growing market for Canadian producers: price structures for timber that favor Canadian exports of lumber/ply to the u.s., and organizational aspects of the industry there that have helped penetrate U.S. markets: LR contracts to firms as harvesters, and low cost for stumpage, plus low cost rail across Canada. Tariff battles over Canadian lumber imports in recent years. (3) Southern U.S. competition Key Trends: Post ca. 1965: (1) Log Export Trade (2) Greater Use of Residuals (3) Internationalization of markets ------Historical pattern of Working Circles, linked to residual processing "sort of." January 21, 2015

------Beginning about 1960, Japan in its postwar recovery began to be a major importer of logs from the PNW. How? Initially, they purchased USFS timber, which was sold in open bidding. Bids were sealed, and price floors were established. Typically, before this, ownership structures were governing factors in the competitiveness of bidding: distinction between purely public, purely private and mixed stand for price & supply. Degree of noncompetitiveness...in log supply areas. Enter the Japanese: outbidding everyone. Leaving un- integrated owners without any timber supply. Clamor, over public timber supplies, leading to the Morse Amendment which bans raw log exports from uSFS lands: still in effect, reenacted every two years. Why: many more jobs in processing than in raw log export: explain sequence. q Similar legislation in B.C., Oregon for state lands, Alaska, California, but not on Wn. DNR lands: the trust. Initial problems of enforcing the Morse Amendment led to "anti-substitution legislation," but enforcement is tough when logs are commingled across ownerships. Data clearly show the response to the favorable prices offered by export markets have been a huge supply--largely from private industry and RR lands: liquidation of old growth. This has financed big firms like Weyco into global corporations---and led to the demise of small local mills who cannot profitably compete for local logs in a poorly monitored non-substitution market. In recent years, exports of processed lumber have grown, but are still small compared to log exports. And since the mid-1990’s log exports have dropped significantly. What should policy be here: should we ban exports? What are the pros and cons? From whose perspective? ------recent issues: Old Growth Habitat conservation: the Spotted Owl Issue January 21, 2015

Problems of jobs in communities impacted by technological. change that has increased productivity, but led to labor reductions. creative new opportunities through "linkages,: ala the European flexible specialization model: "value added" strategies Canadian Free trade vs. local selling systems Banning log exports from state/private lands What to do? Issues of fisheries and forest supply problems. Options for diversification in timber-dependent communities? Diversification into what? The Clinton administration Northwest Forest Plan. Failure to develop harvests off National Forest lands has led to various proposals in Congress to increase harvest. The short-run “Salvage rider” solution to the federal timber supply problem, pushed by ex-Senator Gorton, was a way of getting some federal timber into mills. However, this was not a long-run solution, and was thrown out by the courts. The Bush Administration made moves to increase harvests off National Forest lands—the “Healthy Forests” initiative. The Obama administration has supported the Northwest Forest Plan.