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Forest products.

Forest Products

Montana's forest products industry suffered through some very severe market conditions in the early 1980s. After the industry rebounded from that period, it enjoyed record production and sales in 1987. Production, sales, and employment were slightly lower in 1988 and 1989 (figures 1 and 2).

Strikes were the story in 1988. They affected 20 percent of the state's sawmill capacity for three months. This led to lower production, sales, and employment for that year. I believe that without the strikes, 1988 production would have exceeded 1987 levels.

With the strikes, Montana's 1988 forest products industry sales were $875 to $900 million. These sales figures are down $50 million from 1987 levels, in constant 1988 dollars. Employment in 1988 was also down from 1987 levels. There were about 200 fewer full-time workers in 1988 than there were in 1987.

In 1989, timber supply problems, as well as a period of very cold weather in February, reduced production and sales. The cold weather affected production but probably not employment.

The supply problems were due primarily to disruptions in the federal timber program in a number of Montana's national forests. Through 1989, statewide mill curtailments and closures have had a minor impact on employment. We do not have the final numbers for 1989, but the impact on employment should be about the same as the strike--200 workers out of more than 11,000 workers.

As you can see, the impact of the timber supply problem statewide has not been large. However, in some specific areas, such as Beaverhead County, timber supply problems have had a substantial impact.

In looking to the short- and long-term future, I believe the potential exists for much more substantial impacts than we have seen so far. Timber supply is the major issue affecting the industry.

Timber Supply. Let me quickly summarize the timber supply outlook based on analyses done by the state of Montana Division of Forestry, the U.S. Forest Service, and the University of Montana School of Forestry. Analyses done by these organizations during the mid-1980s indicated very tight timber supplies in the 1990s, given that national forests sell their full allowable sale program. They projected a shortfall in about the year 2000 as the harvest on industrial lands declines. So the outlook was for a timber supply shortage in about a decade.

Given recent developments on the national forests, Montana's timber industry now faces a short-term problem in addition to the longer-term problem identified in the timber supply analyses. Let's look first at the short-term situation, 1990 through 1992. To do that, we need to focus on what is happening on the national forests in Montana. Figure 5 shows national forests have been selling substantially less than the allowable sale quantity (ASQ) prescribed under the full implementation of the national forest plans.

In fiscal 1989, the shortfall was approximately 135 MMBF. In fiscal 1988, the national forests in Montana undersold their ASQ by 30 percent or 171 MMBF. The shortfall over these two years represents approximately 12 percent of the average annual volume of the timber Montana's industry processed over the last 5 years.

The sales shortfall has not been translated directly into production declines because:

* The mills in Montana had a substantial backlog of national forest timber under contract in the mid-1980s. This cushioned shortfalls in the sale program thus far; the increased private harvest also helped.

* The uncut volume under contract has fallen to a very low level--lower than at any time since 1962 (figure 4). Because of the low volume under contract, shortfalls in the national forest timber program in 1990, 1991, and 1992 will translate more directly into production curtailments than have past shortfalls.

It is not easy to pinpoint the cause of the shortfall. National forest officials indicate that the reduced sale program is a result of the difficulty encountered in fully implementing the national forest plans. The national forest indicate a number of reasons. They include:

* Court decisions and appeals affecting timber sales, compounded by the lack of a resolution of the wilderness issue;

* New old-growth timber management requirements;

* Threatened and endangered species constraints;

* Cumulative effects on national forest sales from harvest on private lands; and

* The severe fire season of 1988, although fires did give a temporary boost to the program on some forests in 1989.

These and probably some that I did not list have resulted in the sale program falling below the harvest level prescribed in the forest plans (ASQ).

What are the implications of this shortfall? I believe we are certainly looking at measurable impacts on employment. If I assumed that the last two years' sales offering on the national forests were going to be permanent and not replaced by other sources of timber, I estimate a decline of 800 to 1,200 average annual full-time equivalent workers.

My projection for the 1990-1992 period is more optimistic. I project that average annual employment statewide will be down 300-500 workers per year from 1989 levels, due to the difficulties with the national forest timber program.

The level of the projected decline is based on two assumptions:

* Private harvest does not decline over that period and, in fact, some additional timber from small private ownerships will be available in response to higher prices for timber. (Spot market prices were up 20 to 40 percent from September 30, 1988 to September 30, 1989.)

* Problems on the national forests can be resolved in the next two to three years, with the sale program increasing to the allowable sale quantity (ASQ) presented in the forest plans by 1992.

Long-Term Outlook. Looking out into the latter 1990s, I still see timber availability as the main determinant of the size, structure, and employment level in the forest products industry in the next ten years. Timber supply projections made in the mid-1980s indicated a shortfall statewide in about the year 2000 as industrial private harvest rates decline substantially. The shortfall probably will come sooner than predicted because of higher than anticipated harvest levels on industrial lands in the last five years. A new timber inventory for Montana, to be completed this year, should provide a clearer look at timber availability on private lands.

Charles E. Keegan III, the Bureau's director of forest products industry research, outlined the outlook for the state's forest products industry. A more detailed look at the industry, including data for local areas, will be featured in the summer issue of the Quarterly.
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Title Annotation:1990 Economic Outlook Seminar
Author:Keegan, Charles E.
Publication:Montana Business Quarterly
Date:Mar 22, 1990
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