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Timber industry awaits new deal.

Timber Industry Awaits New Deal

For Keaton Gildersleeve, the past several years have wrought an odd form of torture. President of Gildersleeve Logging of Ketchikan, he is a contract logger who used to log mostly in the Tongass National Forest. Lately, though, he sand his 70- to 80-member crew have been logging increasingly for private land owners, notably the Sealaska Timber Corp.

One reason for the pain, even though timber markets have been at or near historir highs, has been the uncertainty that has plagued the Southeast timber industry for the past four years as Congress has debated changes in management of the nation's largest national forest.

"It's been very difficult to be at the end of the deal. WE used to operate on multiyear contracts with the pulp mills. But with the uncertainty over the future of the industry, the mills have offered only single-year contracts. That has made relations with out bankers difficult. It's difficult to get loans for new equipment when you have no stability," says Gildersleeve, a 30-year logging veteran and owner of three floating camps on the southern Panhandle.

Gildersleeve is attempting to build more stability by working increasingly on the 400,000 acres of Native-owned timber on the Panhandle. But many of the other nearly 4,000 loggers, road builders, logging truck drivers and saw and pulpmill workers who make their living from timber can't separate themselves from dependency on the 16.8 million acre national forest for their wood.

Althoug their long wait may be about over, it's not certain they will like the outcome. Odds are good that Congress this fall, either just before or just after you read this -- possibly later this fall in a post-election lame duck session -- will reach final agreement on a version of a Tongass Timber Reform Act. The bill likely will make major changes in how the forest will be managed, changes that will have anywhere from a slight to a devastating effect on the timber industry, depending on which version passes and on whom you talk to.

"While no one in the industry is happy with the changes we are looking at, everyone wants the issue settled, as long as we don't have to sacrifice any more than we already have agree to," says Thyes Shaub, governmental affairs director of the Alaska Logfers Association. "The uncertainty over the future of the long-term supplies has been too disruptive. Small firms especially have been troubled. It is time that the issue is settled."

Bart Koehler, a representative of the Southeast Alaska Conservation Council, agrees in part. "We want to get this over with. Everyone is looking at resolving it this year, but we still want it done right," he notes.

At issue isn't whether management of the Tongass will change, but how changed it will be. The U.S. House of Representatives in 1987 and again in 1989 as well as the Senate early this summer passed legislation making major changes in timber operations.

Both bills repeal a 4.5 billion-board-feet-per-decade harvest availability mandate that was tucked in the Alaska lands act of 1980. Both bills repeal a formerly automatic $40 million appropriation to the U.S. Forest Service to subsidize marginal timber harvest. And both bill establish mandated 100-foot buffers along the sides of major salmon streams in the region, althoug the Senate bill doen't go as far in protecting smaller tributaries.

Main differences are that the House bill would outright repeal the remaining nearly two decades of the 50-year timber contracts held by Louisiana-Pacific's Ketchikan Pulp Co. mill and Alaska Pulp Co.'s Sitka mill, while the Senate's act only would require mandated renegotiation of some of the points.

The House bill would add 1.8 million acres in 23 prime, old-growht timber tracts to wilderness, cutting logging to around 181 million board feet a year from the current allowable 450 million under the worst case Forest Service estimates. Environmetalists argue the reduction really would be only a fraction of that.

Under the Senate bill, only 12 areas would be placed off limits to logging and kept out of wilderness, totaling just 677,000 acres. More than acreage, however, the debate centers over which lands are excluded from logging. The old growth Sitka spruce -- some trees may be worth up to $10,000 a piece -- produce the best deer habitat, offer the largest shade for salmon streams and are the most beautiful from a scenic standpoint, but also are the most profitable to log.

Says Joe Mehrkens, director of the Wilderness Society's Southeast Alaska Natural Resources Center in Juneau, "The debate has always been over the old growth, not over the gross acreages involved. And the old growth is the type of wood that the forest is running out of."

Industry's Welfare. Pending the outcome of the Tongass legislatio,n, the timber industry is doing quite well, thank you, although not quite as good as in 1989.

Martin Pihl, president and general manager of Ketchikan Pulp Co., the largest pulp mill in the region, says, "The markets have declined from their high in the third quarter of last year, but they were quite high then, is some cases at record levels. We think they may dop a bit more this fall before they level off or even rebound. The markets right now are quite respectable and we don't expect any major drops into next year."

White prices for wood pulp have fallen from a very healthy high of around $700 a ton to about $550 a ton since last fall, prices for round logs have continued high, being affected only by the falling value of the Japanese yen. The yen's weakness, and thus the relative strength of the U.S. dollar, has effectively cut values of Alaska timber by between 15 and 20 percent.

Saw log and finished lumber prices have also fallen because of the yen's drop, but the market is still flying high, compared with the deep recession values of 1981 through 1985. Proof comes from the U.S. Forest Service. During the recession both pulp mills, after accumulating losses, were given price breaks on their wood, paying base rates of just $1.47 per thousand board feet.

Ketchikan in 1988 accepted changes in its sale contract allowing prices to rise. For the first five months of 1990, the mill averaged paying $112 per thousand board feet. The Sitka mill only in July started paying market rates of $127 per thousand board feet -- an 80-fold increase in stumpage fees. The higher prices will likely affect mill profits, because the higher fees hike costs by an estimated $1 million a month.

That the overall timber industry has been riding high over the past three years is clear from any statistics you want to pick. According to the state's Department of Commerce and Economic Development, the total value of Alaska's forest exports last year hit $612.7 million, up from $474.7 million in 1988 and more than triple the $202.9 million low logged in 1985 - the economic low point of the recession.

Logging has boomed. Last year, counting production from Native and national forest lands, as well as a few private tracts, the Panhandle produced 854 million board feet of timber, up dramatically from the 1981 crash year of 335.3 million board feet. The Forest Service reports that 444.6 million board feet were harvested in fiscal year 1989 from national forests, marking production nearly as strong as the 452 million-board-foot glory year of 1979.

But 1989 likely will never be equaled again. Regardless of what happens to the allowable harvest on federal lands, harvesting will be dropping because the best of many of the Native tracts have been felled. Frank Seymour, senior marketing specialist for the state's Division of Business Development, estimates the harvest on Native lands will fall by 12-15 percent this year and by a similar amount next year.

"The Native (round log) cut should have started falling last year, but the markets got stronger and stronger and stronger, making marginal timber become economically viable. But that wood is gone," says Seymour. While Sealaska Timber Corp. still has comfortable reserves, as do Sitka's Shee Atika urban corporation, and to a much lesser extent Klukwan Forest Products, many of the region's other Native corporations are low on timber. Sealaska, in fact, has voluntarily slowed its harvest operations this summer, partly in response to an unfavorable revenue-sharing decision with other Native corporations.

Thus, the total logging industry on the Panhandle will be facing reductions in future years, regardless of the outcome of the Tongass debate. But most projections indicate the markets for Alaska wood on average will remain steady, absorbing what wood is available for harvest through the 1990s and into the 21st Century.

Two researchers for the U.S. Forest Service's Forestry Sciences Laboratory in Portland last fall reviewed all the previos market demand studies for Alaska pulp, softwood lumber and softwood logs. The researchers, R.W. Haynes and D.J. Brooks, predicted that total harvest in Alaska would average 660 million board feet per year during the early 1990s before falling to about 545 million board foot per year in the decade from 1995 to 2005.

They predicted that the industry would remain at present levels as long as about 400 million board feet are available on average for harvest from the federal Tongass lands yearly. Segments of the industry, however, may change.

While most predictions are that round log export prices will remain quite strong and that lumber prices will stay viable, the long-term demand for dissolved pulp is predicted to fall.

Most dissolvable pulp from Alaska is used in rayon fabric, although the Ketchikan mill has the ability to make some grades of paper from its pulp. Rayon production had been in steady decline until 1988, when a fashion trend caused a spurt in demand, just as other mills worldwide had shifted into fluffy pulp of the type used in sanitary napkins and toilet paper. The result was a welcome boost in dissolvable pulp prices. But the trend will be short lived if the experts are correct.

Irene Durbak, a Forest Service researcher for the U.S. Department of Agriculture in Madison, Wisc., last summer predicted that the long-term trend still is for dissolvable pulp markets to slowly decline as the fiber loses out in competition with other natural and synthetic fibers. Still Durbak said the Alaska mills may be able to remain profitable thanks to reduced labor costs and greater fuel efficiency, prompted in part by the need to meet environmental standards.

The softwood-clip markets, however, may offset the weakening pulp markets. Alaska wood may be needed to replace quantities of Pacific Northwest timber in the Asian export markets as result of the spotted owl controversy that is reducing supply from the Pacific Northwest, thereby raising prices and making Alaska wood on average more competitive.

"We really believe we have reduced our cost and increased our efficiencies so that we'll be able to withstand whatever the future may bring, as long as we get a reasonable land bill out of Congress," says Ketchikan Pulp's Pihl.

Forging the Compromise. It's ironic that the industry is calling the Senate bill reasonable when it is more restrictive than a bill segments of the industry seemed mostly responsible for killing in fall 1988. Then, Alaska Congressman Don Young with help from Sen. Ted Stevens had all but worked out a compromise with California Democrat George Miller that didn't contain buffer strips along creeks, preserved only between 9 and 14 new wilderness areas, and was more lenient involving the negotiation of the long-term contracts and in that it didn't outright repeal the 4.5 billion-board foot mandate, only tying it to market conditions.

The compromise died when Alaska Sen. Frank Murkowski, representing the industry and environmental groups, couldn't agree on final terms. Both sides blame the other for the bill's death. Subsequently, in March 1989, the Exxon Valdez hit the rocks, unleashing a wave of environmental sentiment surrounding Alaska issues.

Last fall both sides came within a whisker of agreeing on a compromise during the battle over a budget reconciliation bill that would have protected just under 1 million acres, slicing the allowable cut on national forest land to about 400 million board feet. That agreement also eluded the industry after Murkowski threatened a filibuster.

This year, however, the Senate Energy and Resources Committee led by Sen. J. Bennett Johnson (D-La.) reported out a compromise bill so early that the filibuster threat initially seemed less viable and the Senate passed the bill by a 99-0 vote. Now environmentalists have the luxury of always accepting the Senate bill, still stronger than their original proposal five years ago, or holding out for improvements from their viewpoint in conference.

The betting is that while debate will be fierce over the boundaries for the best old-growth tracts - Kadashan across from Tenakee Springs; Chuck River, south of Juneau; several spots on Prince of Wales Island, including Karta; and Linsianski Inlet, outside of Pelican - that environmentalists will agree to forego designation of much wilderness in return for permanent logging protection for more tracts. It's also considered likely that the long-term pulp contracts will be modified rather than repealed and that more tributary streams will receive greater protection than they don in the Senate bill, but less than in the House version.

One other sticking point entails a complex proposed land trade involving Sealaska Corp., the Forest Service - because of the Greens Creek silver mine on Admiralty Island-and Shee Atika's timber holdings at Lake Florence on the island. Another lesser trade involves Juneau's urban Native corporation, Goldbelt Inc., and its land holdings near Echo Cove, north of Juneau. A smaller conflict centers over whether more protection is needed for the watersheds near Salmon Bay on the southern Panhandle, which is the subject of current court action.

The resolution of the Tongass issue may well be settled by the state's senior senator, Stevens, who warned in June on the Senate floor that he would pull out all stops to defeat a bill much more harsh on the industry than the Senate version. The issue may be what Stevens decides to accept in his election year.

Ketchikan Pulp's Pihl says, "We've given a lot in agreeing to accept the Senate bill. It will have a significant impact on our operations over time, because you can't take away those volumes and those high-quality timber stands without it having some effect. It (the Senate bill) is respectable. But if it gets much worse in the conference committee, its effects will be bad on the industry and Southeast, very bad."

Environmentalists however, argue that their preferred conference approach would take away only about 80 million board feet a year - more than the average annual cut from the national forest over the past decade.

"The industry won't be able to absorb the companies that have been working on Native tracts, but the industry operating on the federal forest can hold its own and possibly even grow slightly, especially if some value-added industries would be established," says the Wilderness Society's Mehrkens.

The effects of any bill that finally passes will be either tempered or exasperated by the Forest Service's own on-going Tongass Land Management Plan that is currently under way and due for implementation early next year. The plan is a decade-long blueprint for harvesting from the forest that covers 65 percent of the Panhandle.

Under the Forest Service's preferred alternative, only six new wilderness areas totaling 612,000 acres would be created, but 17 wild and scenic rivers would be established and two recreation areas and 20 research natural areas would be carved from the Tongass forest. The federal agency also hopes in implementing its plan to still be able to offer 420 million board feet per year for harvest.

The alternative as of late summer apparently was not getting serious study by Congress for inclusion in its pending legislation, although the timber industry was afraid that environmentalists would try to tack the wild and scenic rivers, research stations, and the recreation areas onto any bill that passes, further decreasing available timber acreage.

Another revised compromise, offered last winter by the Southeast Conference, consisting of the leaders of government and business representing large and small cities on the Panhandle, also wasn't faring any better. Apparently the compromise lost credibility in the eyes o some congressmen after the conference changed its position on certain land set-asides under pressure from timber interests.

An unanswered question is whether any Tongass bill will totally resolve court battles currently plaguing Southeast logging. Environmentalists have slowed the release of Forest Service logging tracts at Salmon Bay on Prince of Wales, on Chichagof Island on Kuiu Island near Kadashan, at Chuck River, and at other locations, by filing suits over everything from the adequacy of the Forest Service's master environmental impact statement contained in five-year contract cut plans to the effects of logging on subsistence hunting rights of nearby villagers.

The Wilderness Society's Mehrkens says his group will not pledge to give up its right to future suits if it believes the Forest Service isn't making a good faith effort to carry out the mandate of whatever bill passes.

But Southeast Alaska Conservation Council's Koehler says a bill should go a long way toward making future forest disputes manageable: "It probably won't solve every disagreement over management of the forest, but a bill will bring them to a level where they can be settled in Alaska by cooperation among the parties."

After years of costly wrangling, that may be the best news the Panhandle and its timber industry can hope for.
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Title Annotation:bills pending in Congress will affect logging in Tongass National Forest
Author:Kleeschulte, Chuck
Publication:Alaska Business Monthly
Article Type:company profile
Date:Oct 1, 1990
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