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5.1 History and Current Status of Timber and Timber Product Supply and Demand

5.1.1 World Demand and Supply History and Status

The United States is the largest producer of industrial timber in the world. For the last 40 years, it has produced a fairly stable 25 percent of total world production of industrial roundwood (United Nations Food and Agricultural Organization 2000b). In 1999, the world produced about 53.2 billion cubic feet (bcf), while the United States produced 15.1 bcf, or 28.5 percent of the total. The second largest producer, Canada, produced about 12 percent (6.4 bcf) of the industrial roundwood in 1999. In order, the next most important were China (3.6 bcf), Brazil (1.9 bcf), Sweden (1.9 bcf), and Finland (1.8 bcf).

Although these countries are major producers, domestic demands in those counties greatly influence their stature in international markets for timber products. Observed trade flows in wood and paper products worldwide (Table 2) can largely be ascribed to differences among countries in size of demand, amount of forest, and distance between trading partners (Bonnefoi and Buongiorno 1990). Besides these fundamental factors, trade is affected by government policies such as tariffs and nontariff barriers. Timber products trade also seems to be related to historical political relationships (Castillo and Laarman 1984).

The large size of the United States forest resource helps to determine why the country produces so much, while the size of its domestic economy helps explain why it imports so much. How much a country imports and exports is determined by whether the country's domestic manufacturers supply more than the country's domestic consumers demand at current prices. Countries with reasonably free trade typically do not demand exactly what domestic producers supply. Thus, although the United States because of its extensive forest resources is the world's biggest producer and second largest exporter, after Canada, the relatively free flow of imports, large population, and high per-capita income enables the United States to be the world's largest timber product importer. To illustrate, in the past decade and in terms of dollar value, the United States imported 60 percent more timber products than it exported.

The costs of product movement are why the distance between markets plays a role in determining both the scale of trade and specific trading partners. Usually, the closer physically that two trading partners are, the lower the transport cost. Canada and the United States possess the largest bilateral trade flow, partly because the two countries have a long common border. Proximity also explains partly why virtually every country south of the United States border counts the United States as both its primary source of timber product imports and its principal destination of timber products exports. In Asia and Europe, the dominant trade flow is from nearby Asian supply sources (Indonesia, Malaysia, New Zealand, and Russia) to nearby demand centers.

Both the volume and value of timber products trade have been growing rapidly worldwide, and so trade is becoming more important in many countries as an influence on their forest sectors. Rapid trade growth can be ascribed both to overall world economic growth and to decreasing barriers to international trade. Tariffs on timber products have been decreasing worldwide, as a result of consecutive rounds of the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) (Barbier 1996).

The United States trades in all kinds of timber products. In terms of value, the most important exports are wood pulp, printing and writing paper, and hardwood lumber. United States exports go predominantly to Europe, Canada, Japan, Mexico, the rest of Latin America, and the Caribbean. The most important imports are softwood lumber, newsprint, printing and writing paper, and wood-based panels. Nearly all of United States imports of softwood lumber, panels, and newsprint are from Canada. The United States has negotiated through the General Agreement on Tariffs and Trade (now the World Trade Organization) and other bilateral and multilateral accords some of the lowest barriers to forest products imports in the world. These accords have helped to ensure that U.S. barriers to timber product imports are kept low, probably facilitating the import into this country of wood fiber from emerging producers such as Brazil and Chile. These same accords, however, have also boosted timber product exports to many of those same countries. Recent trade agreements (The Canada-U.S. Free Trade Agreement (CUSTA) and the North American Free Trade Agreement (NAFTA)) have reduced many barriers to trade between these two trading partners, but some disputes have long simmered over softwood lumber and other product exports to the United States. Because the United States is a net timber product importer, then, these lower barriers may have served to reduce returns to timber growing and timber product manufacture in the United States. For example, a growing trend has been the importation of hardwood fiber into the United States from Latin America, especially Brazil. So far, these imports are relatively small, but a possible result of this trend, should it continue, would be to dampen prices below what they would be without such fiber imports. Nevertheless, the trade liberalization agreements, including NAFTA, CUSTA, and WTO-sponsored rounds of barrier reductions, tend to increase aggregate timber product output in the long run and to increase exports of U.S. wood products (e.g., Prestemon and Buongiorno 1996), benefiting American timber producers. The net effects of trade liberalization on the entire U.S. timber-based sector, therefore, are probably small (Barbier 1996, Trømborg and others 2000).

Southern timber products of importance in trade include southern pine (Pinus spp.) lumber, hardwood lumber (especially oak, Quercus spp.), southern pine plywood, kraft pulp, and kraft-based paper (packaging and paperboard). The principal destinations for these products are Western Europe, Latin America, and the Caribbean. Because the population and economies of the latter two regions are growing quickly, demand there for southern timber products exports also can be expected to rise rapidly. Asian countries for the most part have not been major purchasers of southern products (one exception is hardwood chips, going primarily to Japan), so the effect of that region's growth in population and wealth, should long-term trends continue, would be to increase timber product prices in the United States and Canada.

5.1.2 United States Supply and Demand History and Status

Demand for timber products in the United States has shifted among regions continuously since the 1800s. Settlement in the East, Upper Midwest, Interior West, and the Far West was often preceded and facilitated by harvests of old-growth forests. In the East, virtually all of the forests were harvested in the process of land cover conversion to agriculture, but some forests were allowed to grow back. This process was repeated as European settlement moved westward over the ensuing decades. The final stages of old-growth forest liquidation happened in the Pacific Northwest in the last century; the remaining portion is largely protected by reserves, parks, and government policies adopted in the late 1980s and 1990s.

National forest harvests have changed markedly since 1950 (Figure 2). In that year, their share of the United States harvests was 6.6 percent. By 1964, it was 17.5 percent. But by 1998, the share had dropped, this time to 3.5 percent, a result of desires to preserve remaining old-growth forests in the West, to protect habitats of endangered species, and to limit clearcutting. Except for the Southern Region, harvests have declined since 1990 to small fractions of harvests observed in the mid-1980s (Figure 3). The largest percentage drop in harvests was in the West, notably the Pacific Northwest. Its share in total United States harvests declined from a 1950-1989 average of 5.8 percent of all harvests to 0.7 percent of all harvests in 1998.

End uses for harvested wood have evolved over the years, with the mix of uses moving from solid wood outputs, such as lumber, to a greater share of composite products, such as particleboard and paper. As a result, the amount of timber being processed into wood chips, nonwood materials, and recycled fiber has been increasing (Figure 4). The increased use of recycled fiber and other fiber and product substitutes shown in Figure 4 can explain part, but not all, of the decline in timber harvests in the United States since the early 1990s. Another major factor is the steady rise in net product imports. Third has been the increasingly complete utilization of wood in manufacturing processes (Figure 5) (Ince 2000), which would compensate for some of the steadily rising demand for timber products that has been observed in recent decades. Wood use efficiency rose 41 percent from 1952 to 1998. Wood use efficiency was 9 percent higher in 1998 than in 1990, which can also account for much of the reduction in the observed timber product output of the past few years.

5.1.3 Southern Supply and Demand History and Status

Southern States produce most of America's industrial wood output, and their share has grown steadily since the 1960s (Figure 6). The South produced 41 percent of the country's wood fiber output in 1952 and 58 percent in 1997. Over the same period, the South's share of the world's industrial wood production rose from 6.3 to 15.8 percent. Meanwhile, the Pacific Northwest's share of the country's production dropped from 24.8 to 16 percent.

In terms of timber value, the South's role in production has grown steadily since the 1960s, as well. In other regions of the United States, this share has been less stable (Figure 7). As a result, the timber product sector has been a more constant source of economic output in the South compared to other regions. Further, such a steady increase in output implies that investment opportunities for intensive forest management and product manufacture have improved in the South relative to other regions (Murray and Wear 1998, Guan and Munn 2000).

Over the last 50 years, the relative desirability of western and southern timber products has changed. Earlier in that period, western conifers, which dominated much of the timber product market, were considered ideal in construction framing and sheathing, and in pulp. Spruce (Picea spp.), fir (Abies spp.), Douglas-fir (Pseudotsuga menziesii Franco.), western hemlock (Tsuga heterophylla (Rafn.) Sarg.), and western pines make excellent framing lumber and plywood because of their lightness (low density), strength, stability, and workability. Southern pine, on the other hand, historically was not as desired as western and northern softwoods in construction applications. As timber product manufacturing technology for southern pine advanced, however, southern pine's desirability in national construction markets improved. Until the 1960s, the technology for producing southern pine plywood with desirable characteristics for construction that could compete directly with western plywood did not exist. Similarly, until the 1980s, when old-growth rot-resistant woods such as redwood and western redcedar became scarce and before chemical treating technology for southern pine was perfected, treated southern pine lumber was not as desirable for outdoor applications such as decking. Since then, treated southern pine has supplanted these western woods for much of the outdoor application market.

Western manufacturers of strong, long-fiber pulp and paper rely largely on residues from coniferous wood products manufacture--slabs, shavings, and trimmed edges. Therefore, the softwood sawtimber harvest reductions in the West in the 1980s and 1990s have been accompanied by reduced output of pulpwood. Nationally, pulp and paper manufacturing has become more reliant on sources other than western conifers. Southern pine fibers are ideal for high-strength pulp (especially kraft pulp), so pulp and paper manufacturing has become more dependent on pulpwood production in the South as paper demand has grown and western timber production has waned. The rise in the output and technological advancements in structural and nonstructural wood panels and other engineered wood products have created new demands for smaller diameter and lower quality hardwood and softwood timber.

Without increased investment in the forest sector, production contraction in one part of the country, such as recently observed in the Pacific Northwest, inevitably leads to rising timber prices, rising imports, shifts in demand away from wood-based and toward nonwood product substitutes, and the development of new and more efficient manufacturing technologies. In response to price rises, increases in wood product imports, and product substitutions (Figure 4), product manufacturers in the United States, the South, and elsewhere have enhanced wood-use efficiency (Figure 5).

Other responses to changing technologies and price increases have been new and rapidly rising rates of investments by landowners in the South in pine-growing technology. This technology has two parts: (1) intensive cultivation, including tree planting, thinning, fertilization, and vegetation management; and (2) genetic improvement. An index of southern investments in tree growing technology is the rate of tree planting (Figure 8). The trend in such planting has been upward since 1945, with two sharp peaks since that time. The peaks were created in part by incentives programs, including the Soil Bank and Conservation Reserve Programs. Although some of the planting is on newly harvested plantations themselves, part of it is on land previously used for agriculture and part on land previously covered by natural forest types. Both kinds of planting are indicative of how producers have sustained or increased their investments in timber management. The net effect of those investments has been a rising share of pine plantations in the total forest area in the South.

In spite of rising pulpwood production and improvements in product manufacturing efficiency, producers have not been able to increase output as fast as the economy's demands for pulp-based products have grown. As a result, pulpwood prices (adjusted for inflation) have risen (Figure 9). In 1953, virtually no residues (wood chips and other wastes) were used in wood products manufactured in the South; panel and pulp production was made from roundwood. By 1998, residues accounted for over half of the volume of both softwood and hardwood fiber received at the gates of pulpmills and composite panel mills. Given the price rise along with the production increase, it is apparent that technological change and the economic advantages provided by the technology have not been enough to keep prices from rising in real terms. Still, these steadily rising prices serve as incentives for consumers of pulpwood and producers of pulpwood to invest in efficiency-enhancing technologies.

Another important trend that has arisen out of changing technologies and increasing prices has been the rising share of hardwood in southern timber production. For example, in 1953, hardwood roundwood was about 12 percent of all roundwood removed, while in 1999, hardwood roundwood was 34 percent. Hardwood roundwood nearly tripled in output while softwood roundwood slightly more than doubled. Price changes reflect this: hardwood roundwood prices have increased by two-thirds in real terms over the period, while softwood prices have increased by about 15 percent.

Another way that producers of timber products in the South have adapted to rising demands, increasingly competitive substitute products and imports, and rising prices is by altering timber processing. One change in recent years is the chipping of wood at satellite locations. This process is controversial because it encourages harvesting in areas not previously subject to harvesting and encouraging clearcutting, especially of natural management types that before were harvested in a different way. Many view this as negative. Others have viewed the technology positively, creating conditions for better forest management because the chipping technology discourages incomplete or high-graded harvests and because it provides additional income to owners of lower-quality timber. Before the 1990s, pulpmills and manufactured wood panel mills relied heavily on remote log concentration yards and maintained large chipping facilities at the site of panel and pulp manufacture. Today pulpwood-sized logs increasingly are chipped away from the mill, and are brought to the mill as needed. Per unit of volume, moving wood in chipped form is cheaper than moving pulp logs (Dodrill and Cubbage 2000), providing a significant economic benefit to pulpwood consumers and log producers. The current distribution of these remote or "stand-alone" chip mills is shown with the locations of other kinds of chipping facilities in Figure 10. The buyers of most of these chips, pulpmills and manufactured panel mills, are shown along with miscellaneous other mills in Figure 11. A small portion of these chips also derives from a few of the thousands of southern sawmills (Figure 12).

The majority of chips produced in the South are used to make paper and composite wood panels. In 1998, there were 159 chip mills (Prestemon and others 2001), but by 2000, 146 were found in the South. More than three quarters of all chip mills were stand-alone in 2000, not directly tied to a particular wood processing plant; most of the remainder were tied to a pulp mill. Chip mills processed about 27 percent of the pulpwood in the South in 1999 (Hyldahl and others 2000). They produced 47 million green tons of chips in 1998, 45 million green tons in 1999, and 39 million green tons in 2000. In 1999, approximately 42 percent was softwood and 58 percent was hardwood.

Not all of the wood chips produced in the South are consumed by U.S. mills (Figure 13). Since 1989, increasing amounts of wood chips have been exported from the United States. Between 1989 and 1999, residue exports from Southern ports increased 369 percent for hardwood and 372 percent for softwood. Because most residues today are in the form of wood chips, we can say that the export share of southern hardwood residue production increased from 12 percent in 1989 to 39 percent in 1999, while the export share of southern softwood residue production increased from 0.3 to 1.3 percent between those years (U. S. Department of Commerce 2000). Hardwood and softwood wood residue production comprised approximately 12 percent of all wood fiber production in the South in 1996, the latest year for which data are available.

Another indicator of the effect of changing wood production and manufacturing technology is the rising importance of more highly manufactured timber products. Apparently there is a trend toward concentrating a higher proportion of value added at the point of initial manufacturing. Since the 1950s, the use of wood for fuel, posts, poles, and pilings has declined, in favor of wood produced for lumber, paper, and engineered wood products (Figure 14). The proportion of output going to fuelwood in the 1950s was over 20 percent; it has since dropped to under 3 percent. The share of output dedicated to the category of "other product removals"--primarily for posts, poles, pilings, and composite products--has fallen by two-thirds, settling today at about 2.5 percent of timber product output in the South. Between 1954 and 1996, the percentage of wood removed as sawlogs was nearly constant, at around 38 percent. Pulpwood's share rose from 21 percent in 1952 to 47 percent in 1972 and has since leveled off at around 40 percent. The proportion of output in the form of the largest and highest quality logs, veneer logs, has trended upward, from 3 percent in 1952 to about 9 percent in the 1990s. Hence, in contrast to the trend toward more wood products derived from chipped material, the importance of sawmills, especially those manufacturing hardwood lumber and veneer, has risen or been maintained. In the South, the largest number of hardwood sawmills is in areas where hardwood production is most dominant: mountainous portions of Virginia, North Carolina, and Tennessee (Figure 12). But overall production of hardwood timber is highest in Mississippi, North Carolina, Georgia, Alabama, and Virginia.

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