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Montana's secondary wood & paper products sector.

Montana's poor long term economic performance begs a cure. Some suggest that more processing or manufacturing of the state's natural resources should be done in the state, thereby increasing Montana's economic activity, its revenues and its pool of jobs. This thinking has special urgency when applied to Montana's primary forest products industry, where a bleak employment picture prevails.

After increasing for nearly four decades, the state's forest industry employment declined substantially in the 1980s. Moreover, the outlook suggests further reduction due to reduced timber availability. From its current levels, primary industry employment may decline by another 15 to 40 percent over the next several years. (For more information on the primary industry, see "Montana's Forest Products Industry: A Descriptive Analysis" and the Spring 1992 issue of the Montana Business Quarterly. Both are available from BBER.) With projections like these, it's not hard to see why there's so much interest in increasing the so-called secondary manufacturing sector in Montana's wood and paper products industry.

Can the state do more processing of its lumber and wood products, and thereby keep more jobs? From a raw materials standpoint, there seems plenty of room for development. Approximately 90 percent of Montana's primary forest product sector output, such as lumber, goes to purchasers in other states and countries where it is used as inputs for further manufacturing or construction.

The University of Montana's School of Forestry has been looking at this issue. It obtained funding from the Small Business Administration and contracted with UM's Bureau of Business and Economic Research. Funds were used to identify and analyze existing secondary manufacturers in Montana - those firms manufacturing products from the outputs of the primary forest industry.

As a first step to encourage additional in-state forest products manufacturing, the Bureau conducted a census of secondary manufacturers. It identified:

* The number and kinds of plants;

* the type of products being


* kinds and sources of primary wood

products used as raw materials;

* employment;

* payrolls;

* market areas.

This article first briefly defines both the primary and secondary sectors of the wood products industry. Then it summarizes survey results and presents a profile of Montana's secondary wood and paper products industry.

The industry's Primary

Manufacturing Sector

The forest industry's primary manufacturing sector includes: 1) Facilities that process timber into primary wood products such as lumber. 2) Facilities that process the wood fiber residue from 1).

By this definition, Montana's primary manufacturing sector includes approximately 175 plants producing lumber; plywood; pulp and paper (linerboard); particleboard; medium density fiberboard; log homes; utility poles, posts, rails, and tree props; and cedar products.

Taken as a group, these 175 plants comprise Montana's largest manufacturing sector, accounting for sales of just under $1 billion annually. This sector employs approximately 11,500 workers. In 1990, these workers earned about $293 million in labor income.

The Industry's Secondary

Manufacturing Sector

The line between primary and secondary manufacturing isn't always precise. However, in the wood and paper products industry, secondary manufacturing can be defined as further processing of the primary sector's major commodity outputs. Commodities are finished products whose distinguishing feature - from the customers' point of view - is price.

Softwood two-by-fours, for instance, which are graded, priced and sold according to Western Wood Products Association (WWPA) rules, can be considered a commodity, or primary wood product. However, if commodity lumber is further processed to yield, say, window parts, that additional processing is considered secondary manufacturing.

Even so, it isn't always obvious where primary manufacturing leaves off and secondary begins. In a number of Montana's primary timber processing facilities, a certain amount of secondary manufacturing occurs. Some of this is quite modest, such as finger-jointing lumber. And some is quite extensive - for instance, processing house logs into complete log homes.

Other examples of manufacturing past the primary commodity level at primary plants include the production of special grades of paper (such as "mottled white" linerboard); laminating surfaces on and/or custom cutting of particleboard and medium density fiberboard; production of tongue-and-groove plywood or patterned plywood siding; and custom processing by post and pole and cedar products manufacturers. These tightly coupled re-manufacturing processes are not easily separable from primary operations and are included in the sales value of the primary sector (Table 1).
Table 1
Sales Value of Primary Wood
and Paper Products
Montana, 1990
Lumber, structural timbers $425,000,000
 and railroad ties
Plywood 125,000,000
Residue-related products 360,000,000
House logsaog homes 39,000,000
Posts and poles and 10,000,000
 utility poles
Cedar products 1,000,000
 Total $960,000,000
Source: Derived by the Bureau of Business and
Economic Research, The University of

The main goal of this study was to identify secondary manufacturing taking place at separate and distinct facilities. Therefore, we present in this article all secondary wood and paper products manufacturing not attached to primary facilities, as well as secondary manufacturing which takes place at sawmills but is clearly identifiable as a separate operation.

Structure of Secondary

Manufacturing in Montana

The census identified 215 active secondary plants in Montana, which, based on major outputs, were divided into the following categories:

* Cabinets and counter tops.

For firms in this category cabinets and counter tops are the major output. Customers may include residential, commercial, and institutional facilities, and producers of campers and other recreational vehicles. Other products commonly produced by firms in this category include furniture, millwork, and case goods such as gun cases.

* Furniture.

Major output in this category is furniture of various types, including wood office, school, and household furnishings; outdoor furniture; and in some cases completely upholstered furniture. Other common outputs in this category include cabinets, counter tops, millwork, and framing.

* Prefabricated buildings including pole buildings, but excluding log homes.

Manufacturers of pre-built structures such as modular homes, sheds, garages, and pole buildings fall into this category. A number of these firms also manufacture and sell trusses.

* Trusses, structural building components, concrete forms, and assembled windows, doors, and frames.

The major outputs for firms in this category include roof and floor building trusses, laminated beams and archwork, chamfer for concrete pouring, and assembled windows, doors, and window and door casings. Some firms also produce prefabricated buildings.

* Millwork, window and door parts, and custom planing.

This category includes producers of millwork, parts for doors and windows, and custom planed and worked lumber.

* Factory operations attached to sawmills.

Firms in this category re-manufacture lumber and are located on the same site as a sawmill. These operations produce a variety of outputs including millwork, cut stock, paneling, edge-glued lumber products, furniture components, and stakes.

* Pallets and stakes.

These plants make pallets and stakes, and may also manufacture barricades, fence lath, wedges. blocks, boxes, and planters.

* Signs, billboards, and lettering.

Firms in this category manufacture wood signs, billboards, and lettering.

* Specialty artistic products and plaques.

Firms in this category produce a variety of artistic items including carved decoys and fish, craft figures, and plaques.

* Sporting goods.

Manufacturers in this category produce wood framed fishing nets, and archery equipment including long bows, recurve bows, and arrows.

* Other products.

Included here are firms that make products not explicitly listed above, such as toys, games, rocking horses, picture frames, campers, buggies, novelty items, kitchen and office accessories, quilt and loom frames, bird feeders, animal caskets and urns, clocks, book ends, paper castings, corrugated boxes, baskets, coasters, and others.

Scope of Montana's

Secondary Manufacturing

Sales Value and Employment

For 1990, Montana's secondary wood and paper products manufacturers had a total estimated annual average sales value of $144 million. By comparison, Montana's primary sector had a total estimated annual sales value of $960 million.

As Table 2 shows, four categories - cabinets, furniture, trusses, and factory operations at sawmills - accounted for more than 70 percent of the average annual sales. The largest two categories were furniture manufacturers and factory operations at sawmills.

Total average annual employment at all secondary manufacturing facilities was approximately 1,986 full- and part-time workers. These workers earned approximately $24 million in average annual compensation.

Because of difficulties distinguishing between the primary and secondary sectors, about 600 of the 1,986 workers also are included in the 11,500 workers estimated for the primary sector. The primary employment estimate is conservative to begin with because it does not include 2,000-3,000 public sector timber management employees, nor does it include all private sector workers transporting logs and wood products, and constructing forest roads.

Employment distribution closely follows distribution of sales value. Over 60 percent of the workers and 70 percent of compensation to workers occurs in the four major plant categories.


Size of Facilities

Montana's secondary forest products sector is composed of relatively small manufacturing facilities with 125 of the 215 facilities employing fewer than five workers; only eight plants employed more than fifty workers and no facility reported employing more than 150 workers (Table 3). Sixty percent of the sales value was accounted for by mills with fewer than fifty employees.

This pattern is in marked contrast to the primary manufacturing sector. A number of primary manufacturing facilities or mill complexes employ several hundred workers. In addition, more than 90 percent of the primary manufacturing sector's recent average annual sales value was accounted for by plants employing more than fifty workers.



Secondary wood or paper processing facilities operated in twenty-nine of Montana's fifty-six counties. (See Table 4.) However, 79 percent of them (170 of the 215) are located in Montana's ten most populated counties (Cascade, Flathead, Gallatin, Hill, Lake, Lewis and Clark, Missoula, Ravalli, Silverbow, and Yellowstone).

Of these ten counties, the seven with populations that grew from 1980-1990 (Flathead, Gallatin, Lake, Lewis and Clark, Missoula, Ravalli, and Yellowstone) contained 152 of the 170 facilities. This correlation suggests that at least a portion of the output can be associated with local markets.

Flathead, Gallatin, Lake, Missoula, and Ravalli counties also have major primary manufacturing facilities as well as secondary plants. Portions of Montana's secondary sector have a strong orientation to Montana markets and portions rely heavily on primary sector outputs.

Table 5 shows the five Montana counties with the highest sales value of secondary wood and paper products. These counties account for 75 percent of the state's total secondary sector sales value. Missoula County plants had the highest sales at $46 million, or over 30 percent of the total state sales. Missoula County's average annual sales were 50 percent greater than that of Gallatin County producers, who had the second highest county total.



Market Areas

Montana's secondary sector markets differ substantially from the state's primary sector markets. As Tables 6 and 7 show, secondary manufacturers sold one-third of their output to purchasers in Montana. By contrast, less than 10 percent of primary sector sales are to Montana purchasers.

Thus, we could classify virtually the entire primary industry as a basic industry - one that brings new money into the state. But about one-third of the secondary industry appears to be based on serving Montana's local markets.

Besides the state itself, Montana's other important markets for secondary sector wood products are: the far western states; Rocky Mountain states outside Montana; and the north central region. Each of these regions accounts for about 14 percent of total sales. About $9 million or 6 percent of total sales were made directly to purchasers in other countries. An interesting contrast: Sales to the north central region account for about 40 percent of Montana's primary sector sales.

Substantial market differences exist among the various secondary sector product categories. For instance, manufacturers of cabinets and counter tops, trusses and other structural components, prefabricated buildings (other than log homes), and signs and lettering all rely substantially on local markets. Each of these categories markets more than 50 percent of its total output within Montana - and over 70 percent within the Rocky Mountain region.

On the other hand, several categories of secondary operations are almost totally oriented to markets outside Montana. These include: factory operations at sawmills; millwork plants; and manufacturers of unassembled window and door parts, specialty artistic products, and sporting goods. All of these producers reported 90 percent of sales outside the state. Furniture producers marketed 70 percent of their output beyond state borders.



Raw Materials

Of the 215 plants in Montana's secondary manufacturing sector, 149 used as a raw material wood or paper products similar to those produced by Montana's primary industry. Of this 149, 136 purchased at least a portion of their raw material inputs from Montana producers. About 30 percent of the 215 purchase all of their wood product raw materials from Montana producers.

In fact, over 35 percent of total 1990 Montana secondary sector sales value can be accounted for by producers who obtained 75 percent or more of their raw material from Montana producers. That is, one-third of the state's secondary sector sales values is heavily dependant on raw material inputs from Montana purveyors. Sporting goods manufacturers were the only category in which less than half of the firms indicated they did not or could not use material from Montana primary producers.


This survey is only a first step, but it does suggest how the primary and secondary sectors of Montana's wood products industry compare and interrelate. Primary wood products firms tend to be larger, employ more people, pay higher wages, and rely more heavily on markets outside the state. Montana's secondary processors, by contrast, are a much smaller and more diverse lot.

No easy or obvious development pathways emerged from this initial look at the state's secondary wood products manufacturers. For many of Montana's secondary sector firms, growth may be constrained by the traditional barriers of distance to market, and relatively high transportation costs.

However, some secondary sector firms don't appear to suffer a major transportation disadvantage. Specifically, those directly linked to the primary sector that add value without adding bulk and shipping costs, like cut stock processors; and those manufacturing high-value specialty items, like decoys and other carving. Future efforts should concentrate on market opportunites that can overcome transportation disadvantages.

Charies E. Keegan Ill is the bureau's director of forest products research.

Daniel P. Wichman is the bureau's research assistant.

Edwin J. Burke is associate dean, School of Forestry, The University of Montana.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Keegan, Charles E., III; Wichman, Daniel P.; Burke, Edwin J.
Publication:Montana Business Quarterly
Article Type:Industry Overview
Date:Jun 22, 1992
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