PROJECTED IMPACTS ON SOUTHERN TIMBER MARKETS OF ACCELERATED PAPER RECYCYLING

Peter J. Ince1

ABSTRACT

The accelerating use of recycled fiber in paper and paperboard production in the United States represents a major shift in technology. With accelerated paper recycling, pulpwood consumption is projected to grow more slowly than previously anticipated. Relative to long-range timber market projections made several years ago, accelerated recycling would have the greatest timber market impact on the South, where more than half the U.S. pulp, paper, and paperboard is produced. Much of the projected increase in recycled fiber use will occur in product grades now produced mainly in the South from softwood pulpwood, such as unbleached kraft board and newsprint. Thus, accelerated recycling would tend to offset the future demand growth for softwood pulpwood more than for hardwood, and it would mainly offset demand growth in the South. This would extend softwood timber supplies in the South, further leveling delivered price differentials between hardwood and softwood pulpwood and leveling projected increases in softwood sawtimber prices. Although extended wood and fiber supplies also result in projected increases in output of paper, paperboard, and other forest products in the South, timber prices should be more stable in the decades ahead than previously projected.

INTRODUCTION Technology in the North American paper and paperboard industries is significantly shifting. By all accounts, paper recycling is accelerating and will continue to accelerate in the 1990s. For example, until just a few years ago only 8 of 36 North American newsprint producers were reported to be using recycled fiber. Today, virtually the entire newsprint industry is considering how to use recycled fiber (Wirthlin Group survey, reported in American Papermaker, August, 1990, p. 27). By 1995, the “virgin only” newsprint producer should be an exception. rather than the rule. According to the survey, one-third of the newsprint manufacturers in North America said that by 1995 they will produce nothing but recycled newsprint (newsprint with high proportions of recycled fiber). This major shift in production technology is being stimulated by the so-called landfill crisis– declining availability of landfill space amid public opposition to siting of new landfills for solid waste. This has precipitated public willingness to participate in recycling programs, legislative initiatives aimed at increased recovery of materials for recycling, increased supplies of recovered paper in particular, and increased market and consumer demands for products with the “recycled” label. With accelerated recycling, pulpwood needs will grow more slowly than previously projected. On the other hand, over the past decade tree planting and reforestation have been maintained at high levels in the United States. In the South, industrial owners will likely continue to take advantage of economic opportunities for converting nonplantation forests and nonforest areas to new pine plantations, at rates comparable to those of the past decade (Adams and Haynes 1991). Those rates of converting to plantation will probably be maintained in the South until about the year 2010, when most of the economically attractive opportunities will have been exploited. Thus, abundant

1 Research Forester, USDA Forest Service, Forest Products Laboratory, Madison, Wisconsin. The Forest Products Laboratory is maintained in cooperation with the University of Wisconsin. This article was written and prepared by U.S. Government employees on official time, and it is therefore in the public domain and not subject to copyright.

115 economic opportunities exist for forestry investments in the South, even if timber prices remain constant in real terms (Haynes 1990). Although trends in converting existing forest land to other uses are a cause for concern, a more serious concern in recent years has been the potential timber market impacts of conserving endangered species (such as the northern spotted owl) and related old-growth timber issues. This report compares some projected timber market consequences of these trends. However, note that we continue to research timber market impacts of wastepaper recycling for the 1993 RPA Assessment Update, with a revised analysis expected in draft form in early 1992. Thus, results presented here may be viewed as preliminary. In the Forest Service we have used long-range economic models of regional markets that project timber growth and removals, industry capacity expansion, and supply, demand, and prices for principal products of the forest sector across major regions. The models simulate market conditions and behavior over time, including industrial responses to resource conditions. The models have been used to support the RPA Assessment of the Forest and Rangeland Situation in the United States (USDA FS 1989). The Timber Analysis report provides an overview of the 1989 RPA Assessment studies related to timber (Haynes 1990).

In this report, long-range projections were obtained from the same set of economic models used by the Forest Service in the 1989 RPA Assessment. This report includes some more recent projections made after the 1989 RPA Assessment document was published, but all projections are from the same set of economic models (with adjustments in assumptions to simulate different scenarios).

PAPER RECOVERY AND UTILIZATION Figure 1 shows the recent history of the wastepaper consumption rate for recycling in the United States, according to Bureau of Census data. Historically, the rate of consumption per unit of paper and paperboard declined after World War II, leveled off around 1970, and then began to rise gradually in the mid-1970s.2 The trend in the historical data is downward, although the rate of consumption has turned upward since the 1970s. Thus, until just a few years ago, reasonable long- range projections showed the wastepaper consumption rate increasing only gradually in the decades ahead (Fig. 1). The projections shown in Figure 1 are in fact the Base projections for the 1989 RPA Assessment, which were developed 3 years ago. Although wastepaper consumption was projected to increase in the 21st century, it was not projected to accelerate in the 1990s. Likewise, the recent “Southern Study” (USDA FS 1988) assumed that the wastepaper consumption rate would increase gradually in the decades ahead (to a level of only 0.24 tons3 of wastepaper consumed per ton of paper and board by the year 2030, which was even lower than the RPA Base projections shown here). Today, with a substantial increase in recycling capacity taking place, the rate of recycling is now regarded generally as likely to accelerate much more rapidly, especially in the 1990s. Two longstanding measures of paper recovery and recycling are the recyclable paper recovery rate and the utilization rate as defined by the American Paper institute (API 1989). The recovery rate measures how much paper and paperboard is recovered for reuse (domestic or export) as a ratio to new supply of paper and paperboard. In 1988, the recovery rate was 30.7 percent; in 1989,32.6 percent (API 1990b). A nationwide industry goal, announced last year by the American Paper Institute, is to achieve a 40-percent recovery rate by 1995 (API 1990a). This goal will likely be achieved, but it does not specify how much recovered paper will be exported and how much will be used domestically. Wastepaper exports have been growing rapidly in recent years. Currently, about 80 percent of recovered paper is used for recycling domestically, and about 20 percent is

2 Overall, wastepaper consumption increased steadily in the period since World War II, as paper and paperboard production more than tripled. However, the consumption rate per unit of product output followed the historical trend shown in Figure 1. 3 1 short ton (= 2,000 lb) = 0.91 t.

116 Figure 1 –Wastepaper consumed per ton of paper and board produced in the United States. (Source: Bureau of the Census) (1 short ton = 0.91 t) exported. An examination of the domestic utilization rate is necessary to fully understand the domestic situation.

The utilization rate is the ratio of the amount of recyclable paper actually used in U.S. paper and paperboard mills to domestic paper and board production. In 1988, the utilization rate was 25.2 percent; in 1989, 26.4 percent (API 1990b). The likely acceleration in wastepaper recycling in the 1990s can be demonstrated through paper and paperboard production figures and wastepaper utilization rates for individual product grades. Table 1 lists actual 1988 data (API 1989) and projections for the years 1995 and 2000. The 1995 projections, developed by Franklin Associates (1990), were published by the American Paper Institute. The projections for the year 2000 were developed using a scenario of our pulp and paper economic model called the Recycling Future 1990 Analysis, or RF-90 scenario (Ince 1990). The RF-90 scenario simulates long-term consequences of technological developments that are implicit in the industry recovery goal and the Franklin view of accelerated recycling in the 1990s. In the RF-90 scenario, paper and board production is projected to increase to 96 million tons by 2000, when the average utilization rate in U.S. mills (excluding construction paper and board products) will be around 31 percent. Although our model-based projections may be slightly more conservative than the Franklin projections, we generally agree that the largest increases in wastepaper utilization rates will occur in newsprint and unbleached kraft board (mainly linerboard). Significantly, those product grades are produced mainly from softwood fiber and mainly in the South.

RF-90 SCENARIO

Figure 2 compares the RF-90 projections of wastepaper utilization rates with the RPA Base projections developed a few years ago. In the RF-90 scenario we now project that the wastepaper utilization rate will reach 40 percent by the year 2020, and 45 percent by the year 2040. The RF-90 scenario projects much higher utilization rates than those in the RPA Base case. Although these most recently projected wastepaper utilization rates may seem extraordinarily high by current U.S. standards, even higher utilization rates have been achieved already in Japan (50 percent, with a goal of 55 percent in the next decade) and West Germany (45 percent). Therefore, that these

117 Table 1–U.S. paper and board production and wastepaper utilization rates by grade

1988 (actual) 1995 (Franklin) 2000 (RF-90) Utilization Utilization Utilization Production a rate Production rate Production rate (× 106 tons) (percent) (× 106 tons) (percent) (× 106 tons) (percent) Newsprint Printing and writing Tissue and san?? Packaging and ind?? Unbleached kraft board Semichemical board Bleached board Recycled board All gradesb a 1 short ton = 0.91 t. b Excluding construction paper and board.

higher levels of wastepaper utilization will also be achieved in the United States in 50 years is not unreasonable, even though we produce a different mix of product grades than do other countries. One direct effect of the more rapid acceleration in wastepaper recycling in the 1990s (the RF-90 scenario) is to stabilize the projected trend in real prices for delivered softwood pulpwood in the South (Fig. 3). Also, in the RF-90 scenario, delivered hardwood prices approach equivalency with softwood prices as early as the year 2000. After 2000, hardwood and softwood pulpwood prices move outward in tandem, as hardwood fiber and softwood fiber become more direct economic substitutes in a future where recycled fiber utilization will be substantially increased. The projected impact of accelerated recycling on timber markets is substantial-a departure from previous projections.

If substantial real price increases are avoided and the domestic industry develops a capability of using higher proportions of recycled fiber along with hardwood fiber, the long-term effect will be a substantial increase in domestic fiber supply. Thus, our model also projects that a substantial increase in domestic paper and paperboard production would occur, while product imports would decline. Projections of U.S. paper and board production (including construction paper and board products) are significantly higher in the RF-90 scenario than in the RPA Base projections (Fig. 4). We project that domestic production of paper and paperboard products would be 5 percent higher by the year 2000 and over 15 percent higher at the end of the projection period. Thus, one key result of our analysis is that accelerated recycling-and increased domestic fiber supply-would result in increased domestic production and lower imports of paper and paperboard.

Although we project paper and paperboard production to increase substantially in the RF-90 scenario, accelerated recycling results in a smaller increase in projected pulpwood consumption (Fig. 5). In the RF-90 projections, despite increased paper and paperboard production, annual U.S. pulpwood consumption in the year 2040 would be only 50 percent higher than the level of annual pulpwood consumption in 1988. This smaller increase in pulpwood consumption will lead

118 Figure 3–Alternative projections of delivered pulpwood prices in the South. (1 cord = 3.6 m3 ) to a smaller projected increase in annual pulpwood harvest, and consequently an increase in the volume of timber available for other products such as lumber and wood panel products. In our analysis, we also looked at projected impacts on sawtimber and solid wood product markets.

SAWTIMBER MARKET IMPLICATIONS Our analysis indicated that accelerated paper recycling would result in substantial impacts on sawtimber markets (that is, timber used mostly for solid-wood or structural wood products). Sawtimber stumpage price impacts were analyzed using the TAMM model, the Forest Service model of the solid-wood sector, lumber, plywood, and sawtimber markets, in conjunction with the ATLAS timber inventory and growth model. In relation to sawtimber markets, concern has arisen in recent years about another major issue, namely the prospect of declining timber supplies due to

119 Figure 4–Alternative projections of U.S. paper and board production. (1 short ton = 0.91 t)

Figure 5–Alternative projections of U.S. pulpwood consumption. (1 cord = 3.6 m3 ) planned conservation strategies for species such as the northern spotted owl and related old-growth forest issues, primarily in the West.

Public awareness of this issue was heightened when the spotted owl appeared on the cover of Time magazine (June 25, 1990). About that time, a set of economic scenarios had been developed by the Forest Service and Bureau of Land Management (BLM), using the TAMM/ATLAS models to look at timber market impacts and other likely consequences of implementing a conservation strategy for the northern spotted owl (USDA FS and USDI BLM 1990). The Forest Service and BLM report on that study–“Economic Effects of Implementing a Conservation Strategy for the Northern Spotted Owl”-was released in May 1990. That study projected that implementing a conservation strategy for the northern spotted owl would cause a substantial increase in timber

120 prices and a loss of timber-related jobs, primarily in the Pacific Northwest region. However, it also projected spillover effects on timber markets in other regions, such as the South. As timber prices would be driven up in the West, increases in lumber and plywood production capacity would be shifted to other regions, including the South. As a result, sawtimber prices would be driven upward in the South as well as in the Northwest. We used two scenarios from the spotted owl study as the basis for projecting impacts of wastepaper recycling in the context of sawtimber markets and related issues: the “Base” scenario (very similar to the 1989 RPA Base scenario) and the “Plans + Owls” scenario. The Plans + Owls scenario was the Forest Service–BLM simulation of the timber market impacts of implementing a major conservation strategy for the northern spotted owl and related forest plans in the West. The Plans + Owls scenario assumed a substantial reduction in allowable sale quantities for timber on the National Forests in the Pacific Northwest and Pacific Southwest regions. The Plans + Owls scenario reflected a stringent conservation strategy for the spotted owl and old-growth timber, similar to recommendations of the Interagency Scientific Committee (ISC) strategy. Significantly, both the Base and Plans + Owls scenarios assumed no acceleration in wastepaper recycling in the 1990s, similar to the 1989 RPA Base case. To examine projected impacts of accelerated recycling, we developed a third scenario, which was essentially the Plans + Owls scenario modified to account for lower projected growth in pulpwood consumption from the RF-90 analysis (see Fig. 5). Thus, the third scenario was labelled the “Plans + Owls + RF-90” scenario, which simulated both a substantial reduction of timber sales in the West due to conservation of the spotted owl and old-growth forests and substantially smaller increases in pulpwood harvest due to accelerated paper recycling.

Figure 6 shows projected softwood sawtimber stumpage prices for the U.S. Pacific Northwest as derived in the three alternative scenarios. As already reported by the Forest Service and BLM (USDA FS and USDI BLM 1990), the Plans + Owls scenario resulted in substantially higher projected sawtimber stumpage prices relative to the Base case (essentially, there would be a shortage of sawtimber in the Pacific Northwest, with severe consequences for the timber industry in that region). Higher timber prices would be accompanied by lower timber product output and corresponding unemployment and loss of timber revenues. The unemployment impact was estimated by the Forest Service and BLM to be on the order of 25,000 jobs lost by 1995. Other reports estimated even higher job losses. When the RF-90 scenario was integrated in the Plans + Owls scenario, it reversed some of the projected timber market impacts of the spotted owl conservation strategy and forest plans, but only over the longer term in the Pacific Northwest. Projected prices did not return to Base levels in the Northwest until sometime after 2010, but afterwards the prices dropped below the Base projections. Thus, the severe near-term timber market implications of protecting the spotted owl in the Northwest (at least to the year 2000) are unlikely to be mitigated in that region by accelerated recycling, but over the longer term (beyond the year 2010) some timber market impacts could be reversed. (However, other options are available to reverse some of the timber market impacts of old growth conservation in the West, such as placing greater restrictions on raw log exports.) In the South, where intensive forest management practices have become widespread and where rotations are much shorter, projected timber market impacts of recycling are more dramatic and immediate (Fig. 7). As mentioned previously, the Plans + Owls scenario showed that implementing a conservation strategy for the spotted owl in the West would create a sawtimber shortage that would affect timber markets of the South as timber production would shift from the West to the South. Thus, sawtimber stumpage prices were projected to increase substantially in the South relative to the Base case. However, the introduction of accelerated paper recycling (in the Plans + Owls + RF-90 scenario) negates any projected sawtimber shortage in the South as early as 2000 and afterwards results in a stabilization of projected sawtimber stumpage prices well below the Base projections.

121 Figure 6–Softwood sawtimber stumpage prices in the Pacific Northwest. (1 MBF = 1.000 board feet = 2.4 m 3)

Figure 7–Softwood sawtimber stumpage prices in the South. (1 MBF = 1,000 board feet = 2.4 m 3 )

In addition, as reported by the Forest Service and BLM, implementing a conservation strategy for the spotted owl would reduce U.S. softwood lumber production (because of increased scarcity of softwood sawtimber) and would increase softwood lumber imports (mainly from Canada) (Fig. 8). The accelerated paper recycling in the Plans + Owls + RF-90 scenario has little near-term impact on projected lumber production and imports, at least to the year 2000, because the response of the lumber and plywood industry will be gradual. However, after 2010, accelerated recycling reverses the impact of the owl conservation strategy on lumber production, and projected U.S. lumber production rises to a higher level than in the Base case, while projected lumber imports decline. This occurs as the result of increased domestic supplies of softwood timber, which gradually

122 Figure 8–softwood lumber production and imports. (1 MBF = 1,000 board feet = 2.4 m 3 ) become available for lumber and plywood production as a result of reduced softwood pulpwood consumption. Accelerated recycling has a larger projected impact on sawtimber markets in the South for several reasons: (1) more than half the U.S. pulp, paper, and paperboard products are produced in the South, (2) much of the projected increase in paper recycling will occur in product grades that are now produced mainly from softwood pulpwood and mainly in the South (for example, unbleached kraft board and newsprint), (3) timber rotations and transition from pulpwood to sawtimber size class are relatively short in the South, and (4) small-log utilization technology has become widespread in the southern lumber and plywood industries (facilitating the use of “pulpwood” in place of sawtimber in the decades ahead). The overall result is a future with much less likelihood of scarcity for either pulpwood or sawtimber in the South. These projections do not indicate a future “oversupply” of sawtimber, but only that real prices would tend to be stabilized rather than increasing dramatically in the future. The projections indicate that a substantial amount of lumber and plywood production will shift to the South and that sawtimber harvest will increase in the long term. However, with accelerated paper recycling we could be entering a period with long-term price stability and relatively abundant supplies of softwood sawtimber and pulpwood in the South.

CONCLUSIONS

Accelerated paper recycling will have many important implications for future timber markets in the U.S. South. Accelerated recycling leads to a smaller projected increase in future pulpwood harvest. This results in relatively stable real price projections for delivered hardwood, delivered softwood pulpwood, and softwood sawtimber stumpage in the South (Figs. 3 and 7). Increased sawtimber stumpage prices associated with preservation of habitat for some endangered species will tend to be offset in the South by accelerated paper recycling. This may not come soon enough to avoid near-term impacts on timber supply, prices, and employment in the Pacific Northwest. In the South, with accelerated wastepaper recycling, prices delivered to mills for southern pine and hardwood pulpwood may approach equivalency by around 2000. Accelerated paper recycling will offset future demand growth for softwood pulpwood more than for hardwood, and projected pulpwood demand growth will be affected most significantly in the South. Whereas the 1989 RPA Assessment Base case projected substantial increases in timber prices in the South, we are now

123 looking at a future with much more stable projected timber prices due to accelerated recycling. This offers expanded opportunity for product development based on southern pine and southern hardwoods, and it suggests that the U.S. industry will remain highly competitive in raw material prices for decades to come.

ACKNOWLEDGMENTS The author acknowledges the assistance of Irene Durbak and James L. Howard of the Forest Products Laboratory; Professor Darius Adams of the University of Washington; Professor Joseph Buongiorno of the University of Wisconsin;and Richard W. Haynes of the Pacific Northwest Experiment Station in Portland, Oregon.

LITERATURE CITED

In: Proceedings of the southern forest economics workshop on environmental concerns, government regulations, new technology and their impact on southern forestry; 1991 February 20-22; Washington, DC. Baton Rouge, LA: Louisiana State University; 1991: 115–124.

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