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Changes cloud forestry's future.

It has become common in the timber industry to refer to loggers as an endangered species and to lament infringements on a pioneer livelihood. Representatives of the nation's forest-products sector decry the assault they Say is being made on their livelihood by urban environmentalists and meddlesome bureaucrats.

While the political commentary moves up and down the stridency scale, from grumbling sareasm to shrill panic, it is increasingly clear that numerous, and in some cases irrevocable, changes are taking place in an industry never known for stability even in good times. Almost without exception, the changes stem from government policies driven by rising environmental concerns.

Reflecting these developments, Alaska's timber industry repeatedly has made front-page news for the last two years. Major stories have been filed in every timbered region of the state that has access to markets: Southeast, Prince William Sound, Southcentral and the Tanana Valley. While not all the news has been bad prices are good and demand is strong for most products - uncertainty about the industry's future prevails.

In Southeast, which accounts for 86 percent of Alaska's commercial timber supply, wood and pulp-mill operators are concerned that traditional harvest levels cannot be sustained to feed their operations. "I think overall the mood is cautious," says Leo Barlow, president of Sealaska Timber Corp. of Ketchikan,

Greg Bell, owner of Valley Sawmill in Anchorage, has watched small logging companies in the Susitna Valley shut down one by one, perhaps as many as 10 in the last few years, as state timber sale policies have been endlessly debated. Hopes to supply his own expanding business with logs from the Susitna Valley now have slipped away, at least for the time being.

Bell laments that polities, not professional land managers, are dictating management of the land. "It's real frustrating," he says.

John Sturgeon, president of Koncor Forest Products Co., an Anchorage-based timber harvesting and marketing consortium owned by several Native village corporations, notes that despite healthy markets, typically narrow profit margins make timber cutting and processing risky propositions. "The forest products industry is just not a big money-maker. We're definitely an industry under siege, and I think it's going to get worse," says Sturgeon.

Most devastating to the health of the timber sector have been recent decisions by state and federal agencies to restrict the supply of timber. Loggers and processors have fought and lost battles to preserve their traditional access to public forests.

While the industry faces additional challenges in the form of environmental regulations, labor-management relations and machinations in the marketplace, the new developments in government policy have made timber supply the preoccupying dilemma for companies involved in timber cutting, processing and exporting. Says Thyes Shaub, government affairs director for the Alaska Forest Association, "The number one issue of concern in terms of survival is timber supply."

She explains that although Alaskan mills stand to benefit from forest controversies in the Pacific Northwest and beyond, some are experiencing serious supply shortfalls. "We could be harvesting more than we are if we just had it. (Haines and Klawock) don't even have enough timber to wood their mills for the rest of this year," Shaub adds.

Frank Seymour, a forest products development specialist for the Alaska Department of Commerce and Economic Development's Division of Business Development, agrees that long-term supply will be the key issue for the success of Alaska's timber industry. He explains that current or anticipated restrictions in the availability of timber in Washington, Oregon, California and British Columbia mean a potential bonanza for Alaska.

"The big boys are going to lose the ability to produce. It's going to have a dramatic effect on the value of stumpage (standing timber), which is the underlying value of Alaska's product," says Seymour.

In other words, Alaska could capitalize on developments elsewhere if only the same issue weren't coloring timber management here. As Sturgeon notes, "It's kind of a bittersweet thing. We're certainly benefiting; however, we can see the storm clouds coming."

Industry's Roots. Especially important to the state's overall timber outlook is the Tongass National Forest, the nation's largest. Legislation passed last year was intended to resolve long-simmering disputes over logging practices, fisheries protection and wilderness designation. But fears are increasing that the late 1990 Tongass Timber Reform Act will not bring the hoped-for peace to factions warring over the management of the forest.

In addition to putting more acreage off-limits to logging, the act eliminated guaranteed timber harvest quotas, requires renegotiation of timber contracts with the two large pulp mills in the region and established 100-foot buffers along major fish-spawning streams. It also removed an automatic logging road subsidy that had been in effect for a decade.

Things weren't always so contentious in Alaska logging. As it's currently structured, the industry got its effective start in the late 1950s, when the U.S. Forest Service lured two pulp mills to the Tongass in an effort to boost the regional economy by moving lower-grade timber to market.

Prior to that time, says John Sisk of the Southeast Alaska Conservation Council, there was a small but solid industry in the Tongass devoted to harvesting high-grade spruce and hemlock. He contends the Tongass timber harvests are utilizing high-grade lumber for low-value processes.

Since the early days, both pulp mills have added timber-cutting components to their pulp operations. Also, other mills have been established on the Panhandle and elsewhere in the state. Among recent market entrants is the $20 million sawmill operated in Seward by Chugach Alaska Corp., the Native regional corporation for the Prince William Sound area. The mill began manufacturing wood products in January 1990.

In addition to these larger-scale operations - most oriented toward export markets - Department of Commerce and Economic Development estimates count about 150 small sawmills in the state. Cutting rough timber and lumber for local consumption, these sawmills collectively account for less than 10 million board feet of product.

The late 1980s saw the timber industry pull out of a prolonged slump to post record harvests and earnings. Many plants were upgraded with improvements that should allow them to respond more quickly to future market changes, if supply issues can be resolved.

Alaska has nearly 30 million acres of commercial-quality timber, much of it as yet inaccessible or otherwise unfeasible for development. About 1 billion board feet were harvested statewide in 1989.and 1990, compared to annual production that averaged approximately half that volume between 1960 and 1986.

Seymour of the Division of Business Development estimates that Washington and British Columbia each harvest 10 times more timber than does Alaska. According to the University of Alaska Anchorage's Institute of Social and Economic Research, Alaska log and lumber exports accounted for only 5 percent of more than $6 billion in U.S. and Canadian log/lumber exports to Pacific Rim nations.

Still, at recent levels of activity, timber contributes about $700 million a year to Alaska's economy, including wages paid to about 4,000 workers. Export figures reveal that in 1989, 81 percent of the value of Alaska's log exports and 99 percent of the value of lumber exports went to Japan, indicating the industry is highly vulnerable to jitters and changes in that market.

Timber export projections for the near term vary by nation. The market outlook for Taiwan is considered fair; for China, unpredictable; and for Japan and Korea, positive.

Market demand and prices have dipped from the lofty late 19808. Sealaska's timber boss, Barlow, notes, We became very spoiled at the higher levels."

Koncor's Sturgeon says, "Markets are going nowhere but up. So we're not too worried about it."

Damming the Flow. The overriding fear in the timber industry, both in Alaska and elsewhere, is that a diminishing flow of logs from the forests will push wood product prices so high that customers will begin seeking alternative building materials and non-wood products. There are indications this trend has begun.

Although about 1 million Tongass acres previously regarded as harvestable were added to wilderness designations and put off-limits to logging, the national forest will continue to be a significant producer of timber. Harvests will decline from a previous high of 4.5 billion board feet per decade to about 4 billion board feet per decade.

Of more immediate concern to the timber industry are the potentially unfavorable interpretations of the Tongass Timber Reform Act that may guide U.S. Forest Service implementation. The agency already is embroiled in pending lawsuits that contend it has not taken adequate measures to protect subsistence in Tongass timber sale areas.

One change enacted by the reform act is the determination of allowable cuts on the basis of true market demand, rather than on what critics charge formerly were artificial parameters favorable to the industry. According to state timber analyst Seymour, the legislation created another quagmire. "There's no way to meet market demand. There's more demand than the whole bloody forest could provide," he says.

Such issues could lead to further litigation, which the act was designed to prevent. A recent industry response to the seemingly endless potential for timber lawsuits was the formation of the Loggers' Legal Defense Fund, an effort to protect jobs in the forest. June Cristle, volunteer executive director, has hung her shingle out at the Hoonah headquarters of Whitestone Logging.

The legal and political wrangling over timber management issues is not exclusive to Southeast. Clouds of controversy that hang over an up-and-coming logging industry in Prince William Sound are as thick as the stormy mists that often crowd the rugged coast. Native corporations are resisting efforts to involve their forested lands in a complicated proposal to use Exxon oil spill settlement money to purchase timber rights as a way to mitigate environmental damage from the spill.

Among those most concerned are the shareholders of Chugach Alaska Corp., whose hopes to overcome a recent Chapter 11 filing are riding on the expensive, state-of-the-art chip and lumber mill in Seward. Some experts in the industry privately contend that Chugach spread itself too thin in developing the project, that the supply of timber available for operation in relation to the cost of the facility was too tenuous. But the mill has its well-informed defenders, too.

Seymour says the mill is well-positioned for success, although construction delays caused it to miss a year of the really high-priced markets. "That made a big difference," he notes. Seymour says the delay and several other "left hooks" complicated efforts to open the mill.

Jim Hendrickson, manager of the Chugach mill, says the plant has been running three shifts, two for sawing and one for chipping. With logs coming mostly from Chugach's own land, estimated to hold 855 million board feet of timber, Hendrickson is feeling confident about supply. Among the timber sources are Afognak, Two Moon Bay, Windy Bay and Icy Bay.

Hendrickson figures current supply is sufficient to run no less than two steady shifts through May of next year with a pause for Christmas. He also predicts the mill, once a factor in the corporation's bankruptcy filing, will emerge before year's end as the key solution to Chugach's cash shortage problems.

Chugach also is breathing easier about the pressure to save rather than cut its timber. (Gov.) Hickel's changing his tune about locking up Prince William Sound. We feel more confident now,' says Hendrickson.

Not so confident about Hickel and his team of resource development boomers is Valley Sawmill's Bell. Opposing the recent state decision to defer plans for any increased logging on state lands in the Susitna Valley, he accuses the administration of being more interested in big oil than little timber.

"We're disappointed. The supply has always been a problem. There have never been two years alike," says Bell. He charges the state is preoccupied with developing land use plans for its own sake and that the plans are obsolete before they can be implemented.

Bell is using a turning mill, recently purchased from defunct United Building Supply, to produce log home kits. Indicators for the value-added product are good in the Japanese market, he says.

The mill owner will also seek to fuel his operation with logs from private lands in the valley. He notes that Native landholders such as Cook Inlet Region seem interested.

More Issues. Another major Southcentral timber story this year was the failure of the legislature to approve funding to buy Koncor's timber holdings in Kachemak Bay State Park. Koncor strongly endorses the arrangement, which has generated considerable public support. But Sturgeon says Koncor is proceeding with the necessary permit acquisitions in preparation for logging.

Meantime, rumors that state foresters will refocus their efforts from the Susitna Valley to the Interior are absolutely true, says Bob Dick, state forester and director of the Division of Forestry in the Alaska Department of Natural Resources. According to Dick, the main problem for timber operators in the Interior is access to the resource, rather than politics, which has tangled attempts to log in the Susitna Valley.

"The potential climate is there. We have people who are capable of harvesting in the area. The big hurdle is transportation and access," he explains.

Dick says the state is seeking a "reasonably conservative, step-at-a-time, intelligent development of an industry." He foresees a variety of products eventually coming from the mixed spruce/birch forests of the Tanana Valley, including round logs, chips and particleboard.

Chris Maisch, a Fairbanks forester on leave from the Tanana Chiefs Conference to conduct feasibility studies for Menasha Corp. of Wisconsin, says, "The resource is not being used to near its capacity, especially the hardwoods (birch and aspen). There's more hope here now than I've seen in 12 years."

While he declines to predict whether Menasha would move forward with its proposed concept for a multi-million-dollar portable chipping operation in a hundred-mile radius of Fairbanks, Maisch notes his office has received a small but steady stream of inquiries from other outside forest products companies interested in prospecting the Interior.

Even beyond the Tanana Valley, where loggers have yet to set foot, the Yukon and Kuskokwim valleys hold forestry potential that Dick calls "humongous." But although these frontier areas lie beyond the existing transportation network, they are not beyond the ravages of the spruce bark beetle.

Seymour calls the infestation of spruce bark beetles, which particularly has devastated Southcentral forests near Cooper Landing, "a major forestry management issue. It's a massive kill. As the years progress, it'll show up more and more."

Such an ecological dilemma, created by a complex relationship between natural and man-made factors, poses a serious threat to future timber industry prospects. But Seymour points out that the problem is largely out of sight of both the public and a forest-products sector that is preoccupied with fighting fire from human enemies.

Seymour is among those taking aim at environmental organizations for precipitating industry's timber supply problem. "They have nothing but money and no ethical restraints," he says.

But the changes that have created so much uncertainty in Alaska's timber industry are not isolated, nor are they occurring in a vacuum. Prices and export markets always have been driven by developments far from Alaska. Also, the Forest Service for years has been attacked in timber management/supply debates on the national level.

Experts such as forest ecologist Paul Alaback, who conducts research on logging impacts in the Tongass, contend that forest protection is actually an international issue with a growing global constituency. Environmentalists point to their substantial memberships as one of many signs that a large-scale examination of forest practices is supported by a large number of Americans.

But Shaub of the Alaska Forest Association suggests a little balance is in order. "It seems like they're going after every sale that comes up. Every step of the way they say they're satisfied, but when it comes down to it, actions are proving otherwise. We did not get peace in the Tongass. I guess a lot of us didn't really believe we would," says Shaub.

Sealaska Timber Corp.'s Barlow notes that while markets for timber have always been volatile, a relatively stable supply has allowed people to "make a steady living from the forest." Now, Barlow says, "There's a sense that things are never going to be as good as they were in the old hey-day."

Based on his recent observations, Barlow feels product substitution may have begun in the crucial Japanese market. He says total Japanese demand for wood products is down 3 percent this year; total footage of wood in houses is down 7 percent.

"I think we're seeing a trend away from old growth. It's very hard to rebuild market share once they've made a shift in their buying preference," he says.

While fears of economic disruption are no doubt warranted in the current climate, some people are looking beyond the political crises of today to new possibilities. Alaback observes that juxtaposed on the jangled nerves of Southeast pulp and lumber mills are new opportunities in mining and other activities. He cites a "certain degree of optimism" on the part of people in Ketchikan, Sitka and Juneau who are looking into tourism and recreation ventures.

More importantly for the logging industry, however, Alaback foresees the evolution of smaller, independent operations using the forests for a new generation of high-value products. He notes the prized Sitka spruce is valued for numerous specialty products. "It would seem logical there would be some opportunity to do more with old growth on a local basis in terms of manufacturing and processing," says Alaback.

Such notions likely are small comfort to loggers currently struggling with chainsaws and financial doubts in the dangerous shadows of Alaska's forests. That change is upon the industry is clear, but few can predict what the future will carve for Alaska's forest-products sector.
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Title Annotation:government restrictions and environmental concern affect the timber industry
Author:Richardson, Jeffrey
Publication:Alaska Business Monthly
Date:Aug 1, 1991
Previous Article:Bill Noll takes the trade helm.
Next Article:Native corporations fell their forests.

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