By Monica Haynes, Director, Bureau of Business and Economic Research, University of Minnesota—Duluth
It's a multiple-choice question with four well-researched answers. Now it's up to forestry professionals to determine which path to pursue.
A study¹ of four economic impact scenarios for the timber industry in Minnesota's North Central region was done to: demonstrate the current state of forest industry, measure timber harvest trends, develop potential scenarios for future harvest levels, and determine how each scenario might impact the regional economy.
Overall, the forestry sector includes more than 30 industries, contributes nearly 3,000 full- and part-time jobs, $160 million in labor income, and more than $800 million in output to the economy of the North Central region. Of the four largest industries within the forest economy, paper mills contribute most, followed by reconstituted wood product manufacturing, sawmills, and commercial logging.
While net growth of timber (growth minus mortality) has increased slightly since 2008, harvest levels in the region have stayed relatively flat, meaning the industries are harvesting less of the region's available trees. In 2008, 1.21 million cords were removed annually (an 88 percent harvest rate). By 2012, removals had fallen to 0.88 million cords for a 61 percent harvest rate. In the most recent year (2016), less than half of all net growth was harvested in the region.
To combat stagnating harvest levels, the research team crafted four alternate scenarios along with a baseline scenario. The baseline scenario reflects the current state of the forestry sector and assumes that harvest levels and industry production remain constant between 2015 and 2025 with no increase or decrease to any sector. The four alternate scenarios are listed below.
- Scenario I: Harvest levels increase roughly 20 percent between 2015 and 2025, the result of an alignment between net growth and removal rates. In cases where a species' net growth exceeded removals, removals were increased to match net growth. Conversely, if the current (2015) removal of the species exceeded net growth, removals were reduced to align with a more sustainable harvest level.
- Scenario II: Harvest levels increase roughly 45 percent between 2015 and 2025, the result of aligning net growth and removal rates as well as importing timber from neighboring counties.
- Scenario III: Production from the four major forest sector employers in the region declines 25 percent.
- Scenario IV: Forestry sector production increases roughly 14 percent between 2015 and 2025, the result of increased utilization of woody biomass.
Results of the baseline scenario show that, in 2015, the forestry sector contributed more than 4,600 jobs, nearly $225 million in wages, and more than $1 billion in spending to the economy of the North Central region. These results include the direct jobs and output produced by the forestry sector as well as indirect effects (increased economic activity in non-forestry related industries) and induced effects (increased economic activity among local area households). The sector had an output multiplier of 1.27, meaning that for every $1 spent in the forestry sector, an additional $0.27 was created in the economy through indirect and induced effects.
Economic effects of the four scenarios
The potential added economic contribution from Scenario I could be significant. The study found that if the region harvested 200,000 more cords, it could add 1,127 jobs, $44 million in wages, and more than $189 million in new spending, compared to baseline levels. The industries that would likely benefit the most from these changes would be those that currently use under-utilized species, such as lowland hardwoods, red pine pulpwood, and oak. The industries that could see the greatest economic benefits include paper mills, wood kitchen cabinet and countertop manufacturing, and commercial logging.
In the most aggressive scenario (Scenario II), the research team estimated that the forestry sector could potentially increase output by 50 percent between 2015 and 2025 by increasing harvest rates within the region and by importing timber from neighboring counties. If the forestry sector was able to utilize the 500,000 cords resulting from increased harvest levels, the region could see more than 2,800 jobs, almost $120 million in wages, and just over $530 million in new spending, compared to baseline levels. The industries that would likely benefit the most from these changes would be paper mills, commercial logging, and all other miscellaneous wood product manufacturing.
Finally, Scenarios III and IV estimated economic impacts comparing baseline levels to reduced production among the four largest forestry sector employers in the region (Scenario III) or an increase in biomass utilization in Scenario IV.
If demand [or production of] for wood and paper products drops 25 percent (Scenario III), the region could face serious consequences: losses of nearly 700 jobs, $36 million in income, and $190 million in total spending.
However, if the industry utilized the woody biomass that is currently going to waste (Scenario IV), the forestry sector could add roughly 460 jobs, $25 million in income, and $155 million in new spending.
While scenarios III and IV may have smaller impacts than scenarios I and II, they have larger multiplier effects, as their effects ripple through a number of supporting industries, including commercial logging, wholesale trade, electric power generation from fossil fuels, and other related industries.
The results of this study could be very useful to forestry professionals and policy makers who are considering ways to diversify and grow the industry or who are working to bring new forestry-related businesses to the North Central region.
¹Bureau of Business and Economic Research at the University of Minnesota Duluth. (2017) North Central Minnesota Forestry Economic Impact Analysis 10-Year Projections for the Minnesota Forest Resources Council.