Staying Relevant – How Can the Forest Industry Adapt to Changing Markets?
2021 Hamilton Roddis Memorial Lecture Series Presentation
By Scott Bowe/Keynote Speaker
Wisconsin has a seen may changes in its forest products industry over the past 100+ years. The logging camps of the late 1800’s to the reforestation efforts of the last century to the globalized forest products marketplace of today. The COVID pandemic and the closure of the Verso mill in Wisconsin Rapids are two more examples of how we need to expect change. Let’s examine how the forest industry can stay relevant and adapt to changing markets.
Wisconsin’s Forest Industry by the Numbers – Economic impact data from 2018 shows that Wisconsin’s forest industry directly employed 63,893 people. That number jumps to 142,520 if we count the indirect and induced employment. Indirect effects are those businesses that support the forest industry such as a tire dealer supplying new tires to a trucker. Induced effects include the household spending by direct and indirect employees, which further supports the economy. It’s important to note the impact of the forest industry. Not only does it directly support workers and families, but the indirect and induced impacts support more people. This is called the multiplier effect. The same holds true for output. Direct output is the value of the products produced. Output for the whole forest industry was $24.5 billion in 2018. If you add the indirect and induced impacts, the output number jumps to $38 billion dollars. Not bad for a centuries old industry that most people don’t think twice about.
Of course, the past year of COVID had a negative impact on production. In 2020, direct employment dropped at least 5% and direct output declined at least 8%. This drop was compounded by the closure of the Verso mill in Wisconsin Rapids.
What market segments can the forest industry target to stay relevant and adapt to changing markets? There are opportunities in pulp and paper, housing, and hardwood lumber export markets (Figure 1 shows wood using mill distribution across Wisconsin).
Pulp and Paper - Without exception, pulp and paper is important to Wisconsin’s economy. It represents roughly 75% of output with sawmills making up the remaining 25%. The loss of the Verso mill was not surprising when you examine the demand for paper by market type. Of the five large market types, packaging paper, tissue paper, and specialty papers are growing. Newsprint and writing paper (Verso produced writing paper) are declining. After three plus decades, digital media is finally stealing market share from print media. Wisconsin must keep its remaining pulp and paper mill product lines relevant to market demand. As consumers continue to frown on plastic; paper packaging, containerboard, and specialty papers such as food packaging will fill those market opportunities. The paper industry cannot run on recycled fiber alone. These specialty papers may provide the demand to bring new virgin fiber in the mix.
Finding opportunities to utilize the pulpwood volume that went to Verso is a top priority. The Great Lake Timber Professionals Association and other partners are working to solve this challenge. This could be in the form of a restart at the mill or through an engineered wood product mill using a similar pulpwood raw material. It may take several smaller producers to consume the volume of pulpwood that Verso consumed annually.
Housing – A sheet of OSB or a 2x4 costs how much!!! The US Census Bureau shows that privately-owned housing starts soared in March to their highest level since 2006. To compound this demand, COVID disrupted production at sawmills, panel mills, and other building material producers. COVID production interruptions, new housing construction, and high demand in remodeling created the perfect storm. Softwood dimension lumber is up 270%, OSB panels are up 393% year-over-year. Despite all of this, housing forecasts continue to be strong. Historically low interest rates plus GDP forecasts of 4.6% and 4.8% for 2021 and 2022 make housing a bright spot for our economy.
Hardwood Lumber Export Markets – Both domestic and export markets for hardwood lumber have seen their share of ups and downs in the past few decades. Hardwood lumber in general parallels the housing market. Interior trim, cabinets, and flooring are in demand when the housing market is up, and this is what we are seeing now – high demand for Wisconsin hardwood lumber. Similar to softwood lumber, the interruptions in production plus increases in demand have caused hardwood lumber prices to increase.
Export demand is also high. There were demand interruptions caused by COVID and the remnants of the trade war with China, but Wisconsin companies are seeing strong demand from oversees, especially Asia.
Predicting the future is hard, but we can look at current markets and see what is working and what is not. One thing that we know for certain is that healthy forests depend upon a healthy forest products industry. We need markets for pulpwood and sawlogs if we want to manage our forests keeping them healthy and sustainable for future generations.
Figure 1 shows wood using mill distribution across Wisconsin (Source WDNR).