THE ECONOMIC IMPORTANCE OF MAINE’S FORESTRY SECTOR

A Paper Presented at the Seminar on the Future of Jobs in Maine's Forest Products and Paper Industry

14 December 1999, University of Maine

David B. Field

E.L. Giddings Professor of Forest Policy

Department of Forest Management

University of Maine

Orono ME 04469

INTRODUCTION

I've been asked to tell you something about the importance of the Forestry Sector to Maine's economy. During the next half hour I'll present some basic facts on this topic, including past trends, and conclude with observations on the strategic importance of Maine's forest in the Northeast and the United States. The handout ("Some Facts About Maine's Forestry Sector") gives you the basic facts, so I'll just highlight that material and focus on the strategic importance question.

HIGHLIGHTS OF MAINE'S FORESTRY SECTOR

What is the Forestry Sector? Strictly speaking, Maine’s Forestry Sector consists of every economic activity that is based on the state’s forest resources. Because of data limitations, this presentation focuses on the products of the forest, rather than the services.

Forest resources are central to Maine's quality of life. After a removal by 1860 of nearly 30% of the pre-settlement forest, today a larger portion (90%) of Maine's land surface is covered with forest than is that of any other state. More of Maine's forest (95%) is privately-owned than is that of any other state (Kelly, 1993).

The United States Forest Service uses the term "timberland" to refer to forest land that is capable of producing at least 20 cubic feet per acre per year of timber and is not reserved from timber harvesting.Despite the landownership transactions that took place during 1998 and 1999, no other state has as many acres of timberland in industrial ownership, yet more than half of the state’s timberland is held by nonindustrial owners, whose numbers were estimated at more than 250,000 in 1993 (Birch, 1996).

Maine's forested lands produce many products, services, and conditions that are valued by humans. The practice of forestry can work towards all forest output goals, from recreational opportunities to desired wildlife habitat, to timber production. However, I restrict the term "Forestry Sector" in this paper to those activities that are involved in the growing, harvesting and processing of the physical products of the forest. (I comment briefly on recreation and tourism at the end of the paper.) Maine has 15 pulp mills, 16 paper mills, and 56 paper machines with a combined paper-making capacity of 11,655 tons/day (Paper Industry Information Office, 1995), second only to the state of Wisconsin. The state also has numerous sawmills and specialty wood products mills, as well as a small, but high-quality wooden furniture industry. Christmas trees and wreaths, maple syrup, baskets, and many other specialty products add their values to the mix. A large forestry services industry provides the expertise to help landowners to manage their lands according to their goals, subject to laws and regulations designed to protect the public interest in otherwise private lands.

Because of the very high values added in manufacture, the total worth of Maine’s forest products is dominated by the output of the paper industry. Lumber (especially high-quality white pine boards and spruce/fir/hemlock dimension) and specialty hardwood products are also very important wood-product outputs.

In 1996, more than 30,000 workers were employed in Maine’s logging, solid wood products, and paper industries (MIG, 1999). Maine's manufacturing sector, like that of many other states and the United States as a whole, has declined as a fraction of the total economy. (This is due as much to increases in other sectors, especially services, as to actual declines in manufacturing.) From 1988 to 1996, manufacturing employment in Maine dropped 19%, from nearly 107,000 to 86,434 (Maine Dept. of Labor, 1998. However, Maine's Forestry Sector has retained its rank within manufacturing. The stability of the economic base represented by the Forestry Sector is reflected in its long-term contributions to Maine’s manufacturing employment, payroll, and value of product. From 1957-1996, employment in logging, solid wood products manufacture (excluding furniture), and paper fluctuated from 25-31% of total manufacturing (28% in 1996); wages varied from 29-38% (34% in 1996); value of product varied from 34-44% (41% in 1996) (Data from Maine Department of Labor, various dates).

Value added in manufacture (a statistic that includes all employee compensation and employer income) averaged 37% of all manufacturing from 1954-1992, standing at 36.3% in 1992. (US Dept. of Commerce, various years) New capital expenditures declined from 80.7% in 1954 to 53.9% in 1967, then increased to 58.7% in 1992, averaging 65% of all such expenditures in Maine manufacturing over the 38-year period. In 1996, Maine's paper industry alone accounted for 56% of all capital expenditures in manufacturing (Maine Dept. of Labor, 1998). The lumber industry ranked second only to paper, accounting for about 11%.

During 1996, Maine’s Forestry Sector (not including forestry services) accounted for 11.4% of the total value of all products and services produced in Maine by all economic sectors. The Forestry Sector contributed 4.4% of all employment, 7.0% of the wages and salaries payroll (including benefits), 3.7% of the self-employment income, and 25% of the exports from the state (Field, 1999). Of the 20 Maine industries that employed 10,000 or more persons in 1996, paper mills provided the highest average employee compensation ($60,750, including benefits), followed by doctor and dentist enterprises, non-military Federal Government employees, and hospital employees.

During 1996, Maine’s Forestry Sector produced goods and services valued at $5.7 billion (including furniture and non-timber products, but not forestry services) (Field, 1999). However, many service, trade, transportation, and governmental activities could not exist without the basic production activities of the manufacturing industries. The value of production required from all economic sectors in Maine to deliver the output of the Forestry Sector, including direct, indirect, and induced effects, was $8.9 billion. During 1996, the timber-processing part of Maine's Forestry Sector employed 30,556 people. Adding in employment in industries that supported the timber-processing industries (indirect multiplier effect) and employment due to household spending, throughout the economy, of payrolls from timber-processing and supporting industries (induced multiplier effect), total employment in Maine in 1996 due to timber processing activities was more than 69,000. A total of 6,954,652 cords of wood were processed in Maine during 1996 (Maine Forest Service, 1998). Roughly, then, every 228 cords of wood processed in Maine during 1996 supported a job directly. Acknowledging indirect and induced “multiplier” effects, every 100 cords processed supported a job.

THE STRATEGIC ECONOMIC IMPORTANCE OF MAINE'S FORESTRY SECTOR IN AN ERA OF INTENSIFYING COMPETITION FOR LAND

(A full text on this topic was published in the proceedings of the Joint Meeting of the Canadian and Northeastern Forest Economists in Fredericton, New Brunswick, in June of 1996.)

For 40 years, Maine has, on average, produced nearly one-third of all the timber harvested in the northeastern United States. Softwood production has varied from 43% to 77% of the region’s total. Trends in timber production and harvesting restrictions on both public and private lands in other regions have caused the USDA Forest Service to project an increased reliance on timber output from the Northeast to meet expected future national demands. Increased forest practices regulations, demands for more parks and other areas where timber harvesting would not be allowed, and failure to intensify the management of Maine forest lands for timber production would all make it difficult for Maine to continue to contribute its historical share of timber production in the Northeast, and the United States.

THE MAINE FOREST

At the forest level, 80% of the total standing timber value of the 15 most valuable (based on the total stumpage value of volumes actually cut) trees harvested in Maine during 1995 was accounted for by only four products: spruce-fir logs (42%), white pine logs (16%), hardwood pulpwood (12%), and spruce-fir pulpwood (13%) (derived from Maine Forest Service timber cut and stumpage price data). Spruce-fir products represented 50% or more of the value of the 15 most valuable products cut in 1960, 1970, 1980, 1990, and 1995.

In 1997, 6,991,861 cords of wood were harvested from the forests of Maine; the forest products industries processed 7,363,562 cords (Maine Forest Service, 1999).

COMPETITION FOR MAINE’S FOREST LANDS

How Maine’s forest lands should be allocated among competing uses is a major policy issue.

Public lands total about 969,000 acres, including 781,400 acres in State ownership and 187,300 acres in Federal ownership (Kelly, 1993). Most private land is open, by law or custom, to public recreational use (including hunting and fishing). Despite this tradition, national, regional, and some state interest groups seek major expansions of Maine’s public estate. National groups, in particular, have little difficulty convincing their members (most of whom are unaware of Maine’s public access tradition) that the state’s remarkably small fraction of public forestland ownership can only have resulted from sinister forces exerted by “multinational, absentee land barons”.

Proposals for large Federal land acquisitions in Maine have come and gone since 1988. One implication of an enlarged public estate in Maine is evident in recent trends elsewhere. “Sierra Club members recently voted to approve a plan stating that the club will work to ‘protect all public lands in the U.S. by advocating an end to all commercial logging’ on them. The Sierra Club has 600,000 members. This stance is far more hard-line than its past positions on public lands logging, which called for sharply reducing--not ending commercial cutting.” (Late Industry News, The Northern Logger , June, 1996). Proposals for enlargement of Federal ownership in Maine have spoken in terms of both national parks and national forests, but it seems evident, from trends elsewhere, that little commercial timber would flow from Federal lands in Maine, regardless of designation.

Proponents of enlarging Maine’s public recreational-lands estate at the expense of private timberland argue that the service sector jobs created thereby will compensate for the loss in timber-based employment. Maine’s forested lands not only contribute greatly to the quality of life of Maine residents, but also attract many visitors from other states and countries. Recreational uses of these lands form part of Maine’s economic base, and money spent in Maine by recreational visitors from outside the state represents export income.

Unfortunately, there have been few studies of the economic impacts of recreational activities directly attributable to Maine’s forest lands (Maine Audubon Society, 1996), and the standard statistics gathered by government agencies provide little information specific to those lands. The two economic sectors that represent much of the recreation/tourism industry are “Eating and Drinking Establishments” (EDEs) (Standard Industrial Classification 5800) and “Hotels and Other Lodging Places” (HLPs) (SIC 7000). (In addition to hotels, motels, and the like, the HLPs include sporting and recreational camps and campsites.) However, these two industries do not cover purchases of fuel, food, film, sporting goods, hunting/fishing licenses etc., or fees for the use of developed recreational facilities such as amusement parks, movie theaters, video arcades, and ski lifts.

A recent study estimated that, in 1991, Maine tourism supported 78,000 full-time-equivalent jobs, and that visitors spent some $2.7 billion/year in Maine (Astbury, 1992). (These figures applied to all tourism, not just forest-related.) However, in 1993, the EDE and HLP industries, combined, employed 47,500 people, produced products and services valued at $1,304 million, paid employees (including benefits) $548 million, and provided a total of $74 million in income to self-employed individuals (Field, 1996). These numbers represent the totals for these industries statewide. Information is not available to separate out the EDE/HLP activities related to forest lands from those related to coastal resorts and urban areas. Moreover, these numbers represent all users of these industries, including not only tourists from other states and nations, but also Maine residents. Further, there is no easy way to separate recreational users from business travelers who purchase lodging and meals, or to separate tourists from Maine residents who dine out at local restaurants. Thus, the values that would be accurate for recreational/tourist users of Maine’s forested lands can only be a fraction of the numbers shown.

In 1996, the average annual compensation (including benefits) in Maine’s eating and drinking establishments was $12,086, that in Maine’s hotels and lodging places was $14,253 (both down from the 1993 average), that in Maine’s paper mills was $60,750 (Field, 1999). We need sharing and complementary land use, not substitution.

HUMAN DEMANDS FOR WOOD-BASED PRODUCTS

By 2050, the U.S. population is expected to increase (over 1990) by an amount equal to the 1990 population of all states east of the Mississippi except New York. In less time than it takes to grow one of the trees that most of Maine's wood products manufacturers use, the markets for those products could double due to population increase alone.

SUPPLY

The United States

The area of land in the United States that is capable of and available for timber production is declining, and public timberland is increasingly being withdrawn from timber production for wilderness allocation. (More than seven percent of the timberland in the U.S. is now in preserves.) U.S. Forest Service analysts project that there will be no expansion of timber supplies from public lands in the United States, adding that rising demands can be met only by increases in production from private lands (USDA Forest Service, 1994). Paper recycling is expected to only reduce the rate of growth in demands for wood fiber. The Southern U.S. is expected to face serious difficulties meeting demands for wood, and to be unable to sustain rates of expansion experienced in the recent past. "For the first time in its history, the United States does not have a large, unreserved volume of softwood sawtimber in North America to draw upon to meet the Nation's needs for building materials and other purposes." (USDA Forest Service, 1994)

Canada

Canada is facing some potentially severe restrictions on its domestic timber supply. Although Canadian reserves are very large, they are increasingly costly to reach. Moreover, British Columbia, Québec, and the Atlantic Provinces are reported to be harvesting timber at rates that exceed their sustainable allowable cuts. Ontario is close to that condition.

Scandinavia

The European Community is second only to the US as a softwood lumber debtor region. The EC's primary supplier is Scandinavia, which continues to run a large surplus of exports over imports. However, although Finland now has a surplus of timber, Scandinavia is pushing the limits of its timber production capability, so may not be able to keep up with expanding European demands.

Russia

Some have suggested that the former USSR will step in to fill not only the European gap, but also log shortages expected in the western US as a result of recent restrictions on national forest timber supplies. But, although the Soviet Union enjoyed a considerable surplus in 1986, the new collection of countries in that region is expected (by FAO) to be in a major debtor position by the year 2000. Given the current turmoil in the region, about the "Asian gypsy moth" and other insects and diseases, and the chronic inability of the Russians to harvest and move timber efficiently, the ability of the former USSR to fill demands in either Europe or the western US is very much in question.

The United States must look primarily to its own resources to meet future timber needs, and the historically major role of public lands, particularly for softwood timber supplies, is in jeopardy.

MAINE’S ROLE IN THE NATION’S TIMBER SUPPLY

So, Maine’s timber resources are clearly important to Maine, but what of the United States? I’ve done some simple analyses to project the strategic importance of Maine’s timber resources to the United States. First, let’s look at U.S. Forest Service projections of the timber harvests that will be necessary in the contiguous states to meet projected demands to the year 2040. Given expected reductions in national forest timber production and the inability of the South to expand production greatly, the Forest Service expects harvests in the Northeast (all states east of Ohio and north of Virginia) to increase significantly.

I have calculated the historical (1952-1991) fraction of timber production in the Northeast that was accounted for by Maine harvests (Tables 1-3). I then applied these fractions to the Forest Service projections of timber harvests in the Northeast to the year 2040 (Table 4), to estimate the harvests that would have to come from Maine if Maine is to continue its historical contribution to the projected demands from the region--something that is not necessary, of course, but an indication of the importance of the Maine forest. Finally, I have calculated (Table 5) and graphed (Figure 4) estimates of sustainable timber yields from Maine’s forests, both under custodial management and under intensified management regimes, and compared these estimates with the projected harvests needed to meet demands.

As you can see, custodial management of Maine’s forests on a sustainable basis, even with the assumption of no losses of production to land use changes or regulatory influences, could not meet the projected demand for hardwood or softwood. That is, Maine could not meet its historical share of the Northeast’s production without overcutting its forests. With a modest intensification of management, hardwood demand could be met until about the year 2030, and softwood demand could nearly be met for the projection period. The total share of projected demands for the Northeast could not be met after about 2005, even with intensified management. However, Maine’s share of the Northeast’s total output was calculated by including mixedwood chip production in Maine as part of Maine’s total production.

CONCLUSIONS

Maine’s forests are important to the economic well-being and quality of life of Maine’s residents, and are of strategic economic importance to the United States. Especially if timber production on the public lands of the United States continues to be restricted, multiple-use management of private forest lands in Maine will be increasingly important. USDA Forest Service projections of increased reliance on the Northeast to meet U.S. timber demands, together with Maine’s historical contribution to the timber output of that region, indicate that other northeastern states will have to increase their timber output significantly if forest lands are withdrawn from timber management, and if timber management is not intensified in Maine.

LITERATURE CITED

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