Working Paper 2

An Examination of the Washington Department of Natural Resources Timber Sale Program Against a Backdrop of Changing Regional Infrastructure and a Growing Forest Health Crisis

C. Larry Mason

April 2005

Rural Technology Initiative
College of Forest Resources
University of Washington
Box 352100
Seattle, WA 98195-2100
www.ruraltech.org

This report represents a synthesis of information provided from many sources. The work of the research team included review of the literature, interviews with individuals, companies, and other organizations, the development and implementation of the project survey, and the synthesis, analysis, and report of all collected information. The project leader and report author is Larry Mason, Project Coordinator for The Rural Technology Initiative (RTI). Members of the research team included Bruce Lippke, Economics Professor at the University of Washington College of Forest Resources and Director of the RTI; Nick Kirkmire, senior forestry consultant, and Kevin Ceder, Forestry Technology Specialist for the RTI. Additional support was provided by RTI staff, Luke Rogers, Kevin Zobrist, Ara Erickson, and James McCarter, as well as from RTI graduate students, Elaine Oneil and Derek Churchill. Administrative support was provided by Nicole Stevens and Clara Burnett.

Important for the success of this project was the cooperation received from the many professionals that were contacted within the Washington Department of Natural Resources (DNR). No request for information went unanswered. DNR contributors included: Jon Tweedale, George Shelton, John Haddon, Mike Chandler, Pat Ryan, David Larsen, Pete Holmberg, Karen Ripley, Judie Cline, Karen Jennings, Mark Savage, Bruce Glass, Tom Heller, Bob Bannon, Dave Gordon, Jacki Verdi, Angus Brodie, Mark Gray, Len Riggins, and many others.

Other major information contributors included: Roy Nott (Paneltech), John Perez-Garcia (Center for International Trade in Forest Products at the University of Washington), Malcolm ‘Bob’ Dick (American Forest Resource Council), Bill Pickel (WA Contract Loggers Association), Phil Rigdon and Everett Isaac (Yakama Nation), Tim Gammell (Forest Resources Association), Craig Adair (American Plywood Association), Henry Spelter (USDA Forest Products Laboratory), Martin Faulkner (Norbord Inc.), and many others.

Critically important to the completion of this project were the countless conversations with log buyers, mill managers, timber merchandisers, consultants, scientists, and other forestry professionals that provided inside information and professional insights in regards current harvesting, manufacturing, and marketing developments within the region and beyond.

Special thanks go to the many DNR timber purchaser representatives that took time from their busy schedules to respond to the project survey. Without access to current information on purchaser needs and preferences, refinements to the DNR timber sales program designed to provide the best log to best buyer for the best return with the best environmental results would be impossible.

This work was made possible by a Community Assistance and Economic Action Program Grant WNZ-ME-983 within the Multi-Agency National Fire Plan administered by USDA-Forest Service.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author and do not necessarily reflect the views of the funding agencies or project cooperators.

ABSTRACT

Forest health harvesting activities to remove excess fuel loads from overstocked stands conducted within DNR forests in eastern Washington are expected to produce merchantable timber volumes of 25-35 million board feet Scribner (MMBF) per year for the next 5-7 years. As yet undetermined volumes of trees too small for most DNR timber purchasers will also be removed to reduce current fuel loads. Other recent adjustments to the DNR timber sale program such as the recent recalculation of the annual sustainable harvest and amendments to the State Habitat Conservation Plan are expected to result in additional increases of 100 to 150 MMbf in annual timber sales volumes as compared to recent years. Important to the success of forest health harvest activities will be the development of effective strategies for the sale of logs removed.

Keywords: Washington Department of Natural Resources forest health, State timber sales, forest products, logs, lumber, engineered wood products, biomass-to-energy, economic development, sustainability.

EXECUTIVE SUMMARY

For this investigation a review of available literature including scientific reports, journals, conference proceedings, and other topical publications as well as DNR and other governmental agency reports and applicable Washington State and United States policies and laws has been considered against a broader backdrop of state, regional, and global influences. Numerous interviews were conducted by phone, email, and personal conversation with DNR personnel, Forest Service personnel, industry professionals, tribal foresters, timber purchasers, and university scientists. In order to better understand the capabilities and preferences of current and potential DNR timber sale purchasers in WA, OR, CA, and ID, a survey was designed and distributed for response.

Forecasted increases in DNR timber supply of more than 100 million board feet per year, while not insubstantial, represent a relatively small addition to annual harvest volumes for the purchasing region (less than 2% per year). A majority of timber purchasers surveyed report that log supplies are sometimes scarce, increasingly distant purchasers are competing for DNR logs, DNR stumpage prices have risen 30% over the last year, and new sawmill start-ups and expansions are expected to add 1 billion board foot of production capacity in Washington. This investigation finds that DNR additions to available regional timber volume are unlikely to result in negative market reaction. By contrast, new purchaser perception of increasingly reliable timber availability from the DNR in concert with new market-oriented DNR timber sales strategies may result in premium improvements in stumpage values with less expenditure for sales preparation and forest management. Many planned DNR harvest activities are designed to restore forest health and create habitat. Net environmental benefits are expected as well as net revenue improvements. 33% of timber purchasers indicate interest in expanding capacity for utilization of small diameter timber if sufficient supplies are made available.

However, the expectation from purchasers is that the greatest potential use of small diameter timber from DNR forests will be for chips. This situation should be cause for concern given the continuing decline of the pulp and paper industry in the region and that there is no industry expectation for future investment.

Another potential use for small diameter logs and forest biomass is biomass-to-energy generation. While there appears to be growing public interest in biomass-to-energy projects, a majority of surveyed timber purchasers indicated that small diameter trees would most likely be used for chip production not energy generation. A feasibility study commissioned by the Yakima County Public Works Department concluded that forest biomass was too expensive to harvest and not reliably available to warrant investment in a biomass-to-energy conversion facility. However, evolving state and federal policies may provide public investment dollars for biomass-to-energy projects which, combined with the rising cost of fossil fuel energy, could offset high harvest and haul costs to change the currently unfavorable economics of energy generation from biomass as compared to natural gas or coal.

Oriented Strand Board (OSB), laminated veneer lumber (LVL), and other engineered wood products (EWP) continue to gain market share over traditional wood products such as plywood and lumber products. EWP manufacturing processes can utilize small diameter logs. Large EWP markets exist on the west coast yet there is little domestic manufacturing capacity west of the Mississippi River. The currently unfavorable economics of biomass-to-energy projects, the continuing decline of the Pacific Northwest pulp and paper industry, the high cost of harvest and production, the relative lack of regional EWP manufacturing capacity, and the transportation challenges that isolate many forest areas of Washington are all factors that undermine the potential for profitable utilization of small logs in the near term. In the absence of sufficient federal harvest assurances, infrastructure investment incentives, and price supports for alternate energy projects, private sector investment in specialized industrial capacity to absorb small diameter low value logs has not been forthcoming. However, survey results indicate that purchasers have interest in new investment if reliable and adequate log supplies will be made available. In eastern Washington, new forest health contracting flexibilities combined with new management targets created by amendments to the DNR Habitat Conservation Plan (HCP) should mean that greater and consistent volumes of small diameter logs from state lands will be available. DNR will be well advised to look for ways to cooperate with federal, state, tribal, and local economic development interests that seek to create new incentives for small log utilization programs for energy, paper products, or engineered wood products.

As a result of policy changes, annual timber harvest volumes from federal forest lands have declined in Washington to only 5% of 1988 levels but a forest health emergency on these lands has resulted in new political pressure to increase harvest. A substantive increase in available federal timber could improve forest health and provide opportunities for economic development; however, abrupt increases to timber supply would have negative impacts for log markets in the region. When survey respondents were asked if they thought that volumes of timber would likely increase from federal lands, 63% indicated increases are unlikely or impossible and 21% responded that they were uncertain. Interviews with forestry professionals suggest that similar opinions are widely held in the region. Review of the literature also confirms that any increases in federal timber harvest are unlikely to be of sufficient magnitude to influence regional market dynamics.

The forest products industry has undergone dramatic adjustments during the last decade that continue today. Generally there are much fewer players and the spectrum of product operations has narrowed. However, a large and viable forest products industrial sector remains. This investigation finds that aggressive timber sale marketing adapted to changing purchaser needs and preferences can successfully ensure maximum returns to trust beneficiaries and will bring greater opportunities for utilization of all log species, sizes, and qualities. As the largest public timber supplier in Washington, the DNR is well-positioned to provide reliable and attractive timber sale opportunities for purchasers throughout the region which will result in significant state revenues, environmentally responsible opportunities for economically viable forest management, encouragement for investment in needed regional infrastructure, and many other important values as mentioned in this report.

Table of Contents

List of Figures

List of Tables

INTRODUCTION

In 2004, the Washington State Legislature, recognizing deterioration of forest health as a serious environmental, economic, and social problem, directed the Washington Department of Natural Resources (DNR) to initiate a program of timber sales and other silviculture treatments for the purpose of removing hazardous fuel loads from overstocked and distressed forests on state forestlands to reduce risk of forest health decline and catastrophic wildfire. New contracting flexibilities were granted to facilitate the accomplishment of this goal (Washington State Legislature 2004).

Forest health harvesting activities to remove excess fuel loads from overstocked stands conducted within DNR forests in eastern Washington are expected to produce merchantable timber volumes of 25-35 million board feet Scribner (MMBF) per year for the next 5-7 years (Tweedale pers. comm.). As yet undetermined volumes of trees, too small for most current DNR timber purchasers, will also be removed to reduce fuel loads and restore forest health. The combined timber volume will be in excess of the currently-planned regular DNR timber sale program. Other recent adjustments to the DNR timber sale program, both in eastern and western Washington, are expected to result in additional increases in annual timber sales volumes as compared to recent years. These increases in available timber volumes come at a time when the number of sawmills in Washington is at a record low following rapid adjustments to industry infrastructure in response to reductions in public timber availability, changes in sawmill technologies, global market fluctuations, and other factors (Blatner 2003, Pease 2003, Perez-Garcia 2005).

Increasingly complex interactions of evolving science, policy, markets, economics, and public opinion within the region have combined to create unprecedented constraints and opportunities for forest management. Early in this investigation it became apparent that, perhaps as never before, forest management activities on DNR lands in eastern Washington have become inextricably linked to forestry activities within the rest of the state and beyond. This report has subsequently been prepared to provide a synthesis of pertinent informational resources to assist the DNR in the development, communication, and implementation of adaptive approaches for restoring forest health, maximizing returns to trust beneficiaries, and providing opportunities for economic development in eastern Washington as an integral part of a broader State forestland management program.

1. Background

1.1 The Risk – East Side

1.1.1. A Changed Forest
Changes in forest composition and structure throughout the inland west due to a century of fire suppression, grazing, and past harvest practices have been widely documented (Agee 1993, Pyne 1997, Arno 2000). Where once frequent fire return intervals resulted in savanna-like forest conditions, now dense understories of shade-tolerant species have become established (Pfilf et al. 2002, Harrington 2003). Outbreaks of insects and of root disease have resulted in large areas of tree mortality (Stewart 1988). Dead trees and multiple layered canopies have become ladder fuels and increase risk of destructive wildfires. Concerns about large areas of forest lands in the inland west that are overstocked with small diameter suppressed trees are not new (Cooper 1960, Pyne 1982). However, increases in forest fire severity, extent, and costs in recent years have served to focus national attention on the widespread and urgent nature of this problem (Western Governors Association 2001 and 2002, National Fire Plan 2004).

1.1.2. Values at Risk
Because of the fine particulate matter and other pollutants present in the smoke, forest fires can pose a significant health threat to people living in proximity to fire-prone forests (Government Accounting Office 1999, Norton 2002, US Environmental Protection Agency 2001). Smoke from forest fires increases atmospheric carbon associated with global warming (Buchanan and Keye 1997). Intense forest fires create other undesirable environmental consequences such as destruction of wildlife habitat and hydrological damage to watersheds (Camp 1995, Laverty and Williams 2000, Hill 1998, Ice 2004, Lynch 2004). Mechanical operations on the ground to remove surplus fuel loads have the potential to create site disturbances and impact water quality, however, studies have shown that wildfires produce much higher flows of sediment into surface waters than thinning treatments (Elliot and Miller 2002, Rummer et al. 2003). Without intervention, burned lands recover slowly and may be susceptible to vegetation changes that result in undesirable ecological consequences such as proliferation of exotic invaders (Agee 1993, Babbitt and Glickman 2000). Soil nutrients such as nitrogen, carbon, and sulfur can be volatized during forest fires resulting in long term loss of forest soil productivity (Bigley and Hull 1998, Baird et al. 1999). A cost/benefit analysis of multiple market and non-market values at risk from forest fires has shown that potential public loss exposures are likely very high in absence of stocking density reduction activities in large areas of eastern Washington (Mason et al. 2003).

1.1.3. Pre-European Conditions
More than one hundred years of land management practices and wildfire exclusion have changed the species composition, densities, and structures of forests in eastern Washington and other forested areas in the inland west (Everett et al. 2000). Before the arrival of European settlers, frequent fire return cycles in lower elevation eastern Washington forests ignited by lightning or Native American cultural practices resulted in low to moderate-severity fire events (Agee 1993). Subsequently, pre-settlement landscapes had open park-like forests dominated by large Ponderosa pine (Pinus ponderosa), western larch (Larix occidentalis) and Douglas-fir (Pseudtsuga menziesii) (Johnson et al. 1994). Riparian areas and other protected locations on the landscape contained denser forests that served as refugia for wildlife and late seral tree species (Camp 1995). After the European settlers arrived, many of the large old trees were harvested, fire was excluded, and forests shifted to closed-canopies with dense understories of mixed shade tolerant species such as grand fir (Abies grandis), white fir (Abeis concolor), and Douglas-fir. Where high severity fires have occurred, dense stands of lodgepole pine (Pinus contorta) can now be found. Today, forest fuel loads are much higher, more contiguous, and more susceptible to insects, disease, and drought than would have been the case in the forests that existed 150 years ago. Stand replacement fires burn with such intensity that even riparian refugia are consumed (Camp 1995). Numerous studies have determined that fuels treatments to reduce stocking in overly-dense fire-prone forests can lessen risk of catastrophic wildfire while restoring ecosystems to protect environmental resources and replicate pre-settlement conditions (Everett et al. 2000, Omi and Martinson 2002, Fiedler et al. 2001, Graham et al. 2004).

1.1.4. Moisture Deficits
In recent years, eastern Washington has experienced unprecedented drought conditions (Seattle Press On Line 2003). Research findings at the University of Washington indicate that if extreme fire weather associated with recent low rainfall is indicative of global climate change then fire severity and extent can be expected to increase posing a threat to ecosystems and habitats of sensitive plant and animal species. Reduced snow pack and earlier snowmelt in the mountains will extend periods of moisture deficits in water-limited forest ecosystems leaving stressed trees more vulnerable to pathogens and stand-replacing crown fires (McKenzie et al. 2004).

1.1.5. Insect Outbreaks
In the last 15 years, epidemic outbreaks of forest insects have caused significant damage and mortality in eastern Washington forests. In 2003, the DNR reported that hundreds of thousands of acres in eastern Washington have been infested with western spruce budworm (Choristoneura occidentalis ), fir engraver beetle (Scolytus ventralis), Pine bark beetle (Dendroctonus brevicomis), Douglas-fir beetle (Dendroctonus pseudotsugae), and Spruce beetle (Dendroctonus rufipennis) resulting in high levels of tree mortality (DNR 2003).

1.1.6. Rising Costs
With Washington’s population growing at the rate of 67,000 people per year (DNR 2004) development has occurred adjacent to forest lands in areas that have become known as the wildland/urban interface (WUI). Risk from forest fires to private property and human life has increased making fire fighting more complicated, expensive, and dangerous (Government Accounting Office 1999, Babbitt and Gickman 2000). From 2000 to 2004 DNR fire suppression costs per acre have more than doubled from under $1,000 per acre to over $2000 per acre. Total state cost for fire suppression in the 2002-3 biennium was almost $60 million. In addition, more than $10 million is spent each year from state protection funds for fire preparedness (DNR 2003, DNR 2004).

1.1.7. The Legislature Acts
In 2004, the Washington State Legislature, recognizing deterioration of forest health as a serious environmental, economic, and social problem, directed the Washington Department of Natural Resources (DNR) to initiate a program of timber sales and other silviculture treatments for the purpose of removing hazardous fuel loads from overstocked and distressed forests on state forestlands to reduce risk of forest health decline and catastrophic fire (Washington State Legislature 2004).

1.2 The Risk – West Side

1.2.1. Shifting Paradigms
While the need for density reductions on Washington forestlands may be most urgent for the drier eastside, a growing number of scientists are calling for increases in thinning activities in west side forests as well. For several decades there has been increasing regulatory pressure on public and private forestlands to provide for the ecological benefits associated with old growth forests. Early strategies for protection of threatened species such as the northern spotted owl (Strix occidentalis caurina) centered around creation of large forest reserve areas that would be off-limits to any forest harvesting activities (Thomas et al. 1990, Johnson et al. 1991, Thomas et al. 1993, FEMAT 1993). Today a growing number of researchers question the ability of young planted forests to provide old growth functionality without management to reduce stem densities (Muir et al. 2002, Rapp 2002, Hunter 2001). Scientific evidence has shown that thinning of younger forests can accelerate the development of old growth characteristics (Garman 2003, Muir et al. 2002, Acker et. al 1998, Bailey and Tappeiner 1998, Tappeiner et al. 1997, Carey et al. 1996). Scientists, environmentalists, and forest managers are recommending more active management in young stands (Heiken 2003, Franklin et al. 2002, Spies et al. 2002, Carey et al. 1998, Curtis et al. 1998).

1.2.2. Regeneration Differences
Young planted forests, established at high densities in very short time periods with the expectation of pre-commercial and commercial thinnings, are typically uniform and dense with little differentiation (Oliver and Larson 1996). By comparison widely-spaced early stocking densities, associated with a wide range of natural regeneration establishment periods (100-420 years), have been observed as the principal factor in the growth trajectory of older forests with large diameter trees and multi-layered canopies (Poage and Tappeiner 2002). Without density reductions, planted forests eventually evidence suppressed growth, high height-to-diameter ratios, and short crowns; conditions that have been shown to make stands susceptible to windthrow, disease, and fire while inhibiting the development of the large trees associated with old growth forests (Wilson and Oliver 2000).

1.2.3. Thin for Structure
Three major research projects, the Managing for Biodiversity in Young Forests Project in western Oregon (Muir et al. 2002), the Forest Ecosystem Study in western Washington (Carey et al. 1999a), and the Young Stand Thinning Study on the Willamette National Forest (Hunter 2001), have undertaken comprehensive investigations into the effects of thinning. Results of these studies show that understory vegetation, shade tolerant tree regeneration, and the vertical distribution of the canopy in thinned stands tend to be more similar to old growth conditions than in un-thinned stands (Acker et. al 1998, Tappeiner et al. 1997, Muir et al. 2002, Bailey and Tappeiner 1998). Wildlife and plant diversity, including birds, macrolichens and bryophytes, fungi, small mammals, and bats, have also been shown to be greater in thinned stands (Carey et al. 1999, Hayes et al. 1997, Muir et al. 2002, Hunter 2001).

1.2.4. The DNR HCP
Lippke et al. (1996) demonstrated that landscape management alternatives based on “biodiversity pathways” (Carey et al. 1996) can serve both commodity production and non-timber goals. It was in the spirit of integrated management for the production of environmental and economic objectives that the DNR in 1997 negotiated with federal agencies to establish a Habitat Conservation Plan (HCP) on 1.6 million acres of western Washington State forestlands. Eight years later this approach to forest landscape management dominated the selection of a Preferred Alternative for the sustainable forestry calculation that will guide DNR management objectives on western forestlands into the future. The DNR will increase its use of innovative silvicultural approaches to alter forest conditions to produce habitats needed for sensitive wildlife species. A variety of thinning approaches will be employed. At time of regeneration harvest a minimum of eight live trees per acre will be left to contribute vertical structure to the next forest. The goal will be to maintain distributions of forest structural classes across broad landscapes on a rotational basis so that adequate habitat acreages, forest health, and trust revenues are sustained into the future (DNR 2004 ).

1.3 The State Forest

1.3.1. Washington
The state of Washington encompasses a total land area of 43 million acres, of which 49% or 21 million acres is forest. Productive timberland, that is forest lands capable of growing at least 20 cubic feet of timber per year per acre and operationally manageable for commercial timber harvests, amounts to 18.3 million acres or 88% of the total forest area or about 43% of all lands within Washington boundaries. Around 11% of Washington’s forests are managed for Public Trust Beneficiaries by the Washington Department of Natural Resources.

1.3.2. Five Million Acres
The DNR was established in 1957 to serve as a land steward for a variety of state-owned lands. Of the more than 5 million acres currently under DNR management, about 2.1 million acres are in forestlands. Of state land in forest, 1.4 million acres are located west of the Cascades and approximately 650 thousand acres are located east of the Cascades. There are seven Administrative Regions within the DNR. Five of those regions are west of the Cascade Mountains and are considered to be the western Washington holdings. Two regions are east of the Cascades and are considered to be the eastern Washington holdings. These regions are referred to as the Northeast (NE) and the Southeast (SE) regions. While forest health problems are not exclusive to east side forests, the most acute forest health risks on state forestlands currently exist east of the Cascades.

2. Methods

While the primary motivator for this investigation has been public concern about eastern Washington forest health, early review of market information made it apparent that a broader context of the region as the global-to-local interface would need to be considered. Subsequently, this project has been designed to assess multiple influences that affect the market elasticity for increased timber volumes and changing log types that are anticipated to result from adjustments to the DNR timber sale program; east and west; apart and combined. Factors identified that influence marketability will include the existing timber industry infrastructure, infrastructure adaptability to change, regional supply and demand, public and regulatory pressures, and market strategies customized for timber purchaser preference. Information provided in this report has been assembled to help maximize attractiveness of DNR timber sales program, insure favorable revenue benefits to trust beneficiaries, assist in substantive and effective improvements to the health of state forests, and inform potential for economic development. Also important to insure success of a state forestry program will be an integrated understanding of the evolving forest health and timberland management activities on other public and private forests.

2.1 Review of Available Literature

There are many dynamic factors that combine to influence forest management possibilities. An effort has been made to review pertinent elements of the scientific literature and available government reports in order to gain broad informational overview identified by the research team as important to the results of this project. For this investigation reviewed literature included scientific reports, journals, conference proceedings, and other topical publications as well as DNR and other governmental agency reports. Applicable Washington State and United States policies and laws have also been considered.

2.2 Interviews

Throughout this investigation numerous interviews were conducted by phone, email, and personal conversation. Those interviewed included DNR personnel, Forest Service personnel, industry professionals, tribal foresters, timber purchasers, and university scientists. Many individuals generously contributed information founded upon their professional and personal experiences. The body of anecdotal information that resulted was invaluable to the design, execution, and analysis phases of this project. Insights provided from personal interviews served to underscore a recurring theme in this project: solutions will likely be based upon an integration of professional and institutional knowledge that customizes management strategies to best accommodate local conditions and adapt to rapidly changing regional influences.

2.3 Purchaser Survey

In order to better understand the capabilities and preferences of current and potential DNR timber sale purchasers, a survey was designed, based upon recommendations from industry and DNR professionals, and distributed for response to assess the characteristics, capacities, and preferences of potential purchasers of state timber. A list of current and potential purchasers was assembled by combining contact information from DNR mill surveys, DNR lists of successful bidders on state timber sales, University of Washington, Washington State University, and Oregon State University mill surveys, attendee lists from regional timber purchaser meetings, and interviews with mill representatives.

While this investigation has specific interest in timber sales as part of a state forest health program, such sales are considered to be inextricably linked through regional log markets to other DNR timber sales activities. DNR timber sales have historically been sold to both processor and non-processor timber buyers located in and out of state. Processor representatives are typically professional log buyers under the employ of sawmill, paper mill or other wood products manufacturing companies. Processor purchasers buy timber to secure raw material supplies for their manufacturing operations. Non-processor timber purchasers typically fall into two categories: log buyers from large timberland companies and log buyers from family-owned timber merchandizing companies. Non-processor purchasers resell logs to multiple processor customers. Both processor and non-processor purchasers are important to the success of the DNR timber sale. The DNR Timber Sales Summary Report for fiscal year 2002-2003 shows that, of the 25 top timber purchasers for that year, 12 are processors and 13 are non-processor companies.

The survey for this investigation was designed to elicit response from a broad group of active and potential purchasers. Several types of question formats were employed in the survey to insure that maximum information was contributed. Written comments were encouraged as well.

In a related parallel exercise, a DNR timber processor’s survey was begun by the DNR sales and market group in 2000. This survey is ongoing and adds data as it becomes available. Data accumulated from 2000 to 2002 was received from the DNR and reviewed for inclusion in this project. Some companies with multiple facilities have returned multiple responses. While this survey was designed to collect information only from the subset of purchasers with manufacturing facilities, many of its questions are applicable to this investigation. Data from this survey, other mill publications, and DNR timber sales records will be used in this report in combination with response data from the survey conducted as part of this investigation to provide broadest overview of timber market potentials and customer preferences.

3. Results From Review Of Available Literature And Public Documents

3.1 State Forestlands

3.1.1. DNR Responsibilities
A review of federal and state laws and DNR documents reveals that the DNR has unique management responsibilities that must be integrated as it plans for a forest health program. The overwhelming majority of the lands administered by the DNR are held in trusts created by federal and state laws that provide revenues to specific trust beneficiaries. Although the management of trust lands provides broad benefits to all the people of Washington, DNR has a clear legal duty of undivided loyalty to each separate beneficiary to maximize revenue generation from forested trust lands. Trust beneficiaries include public schools, state universities, state prisons, community colleges, Capitol buildings, and 17 Washington counties. In order to meet obligations to all generations of beneficiaries, the DNR must manage state forest lands to balance current and future income production such that perpetual productivity of trust assets is insured. In addition to trust obligations, DNR must comply with a number of federal and state statutes that protect public resources and provide public benefits. To fulfill these mandates, there are governing policies, procedures, and strategies for management of forested trust lands.

3.1.2. The Board of Natural Resources
The Board of Natural Resources provides oversight. The Board of Natural Resources is composed of six members: the Commissioner of Public Lands, the Governor, the Superintendent of Public Instruction, the Dean of the College of Agriculture at Washington State University, the Dean of the College of Forest Resources at the University of Washington, and an elected representative from a county that is a trust beneficiary. The Board of Natural Resources must approve all major policies and management activities for DNR-managed state forest lands.

3.1.3. The Commissioner of Public Lands
It is understood by the people of Washington that the DNR is to be a leader in sustainable forest management and that the pursuit of this goal is publicly recognized and respected. Achievement in this regard is insured by referendum with a popular election every four years to select the Public Lands Commissioner as the titular head of the DNR.

3.1.4. The HCP
Forestry in the Pacific Northwest has evolved in recent decades resulting in shifting mandates with increasing emphasis on adaptive management to insure long term sustainability of a broad suite of public resources (Sutherland and Bare 2002, Washington State Legislature 2001, WAC 222-12-045). DNR interest in adaptive forest management for the sustainable integration of forest restoration activities with revenue generation began in the 1980’s (Commission on Old Growth Alternatives for Washington’s Forest Trust Lands 1989). To demonstrate its commitment to sustainability, in 1997 the DNR formally entered into a Habitat Conservation Plan (HCP) with federal agencies under Section 10 of the Endangered Species Act (ESA). The HCP was designed to provide protection for threatened and endangered species such as the northern spotted owl, as required by the ESA, while allowing more flexibility and stability in land management activities. The HCP guides DNR management of all state forest lands west of the Cascade Mountains but also includes some lands in the eastern foothills of the Cascades within the SE region where northern spotted owls are found. DNR forest lands in northeastern Washington are outside the HCP management area.

3.1.5. 25% of Gross Receipts
The DNR mission statement declares that the agency will provide professional, forward-looking stewardship of the state lands, natural resources, and environment to create a sustainable future for the Trusts and all-citizens. For the provision of resource management services to trust beneficiaries, the DNR is authorized to retain up to 25% of gross timber receipts to cover operating costs. The adequacy of the 25% of gross timber receipts to cover DNR forest management expenses is currently under review (Independent Review Committee 2004). Additional DNR activities not connected with the generation of trust revenues are funded independently by the State Legislature.

3.1.6. Stewardship
Forward-looking stewardship requires ongoing reassessments of available information to support integration of design, management, and monitoring in order to adapt and learn (Salafsky et al. 2001). There is a growing consensus amongst silviculturalists and forest ecologists that, especially in the case of forests that have been previously managed, opportunities exist to develop revenue generating harvest activities that lead to ecological improvements. Fundamental to this approach is an understanding of the dynamic nature of forests as a shifting mosaic of age classes and vegetative structures that can be managed at the landscape scale to insure achievement of multiple biodiversity targets distributed through time and space (Carey et al. 1996, Oliver 1999, Lindenmayer and Franklin 2003). Research findings indicate that comprehensive restoration prescriptions that selectively target for removal a combination of small and large diameter trees may be economically and environmentally desirable in overstocked fire-prone ecosystems where failure to reduce fuel loads can have disastrous consequences (Brown et al. 1996, Fiedler et al. 1999, Fiedler et al. 2001). In the spirit of adaptive management, a number of factors have converged that make this investigation timely:

• The forest health crisis
• Changes in DNR management strategies
• Changes in federal and state harvest volumes over the last two decades
• Adjustments to timber industry infrastructure
• Changes in markets for forest products
• Emerging federal forest health policies
• Strong public interest in forest management

  

3.2 Forest Health

3.2.1. Remove Excess Fuels
There is a large body of evidence within the scientific literature to indicate that many researchers are in agreement: millions of acres within inland west forests are experiencing an unprecedented decline in forest health that has led to fuel accumulations, catastrophic wildfires, increased risk to life and property, destruction of ecosystems and critical habitats, and loss of valuable timber resources. Many researchers and forest managers concur: removal of excessive hazardous fuel loads is warranted across all forest ownerships (Courtney 2004, DNR 2004). Policy makers at federal and state levels are also in agreement (Babbitt and Glickman 2000, Western Governors Association 2001 and 2002, The White House 2003, National Fire Plan 2004, Washington State Legislature 2004).

In 2000, the USDA Forest Service outlined a strategy to address forest health and wildfire in the forests of the inland west entitled Protecting People and Sustaining Resources in Fire-Adapted Ecosystems; a Cohesive Strategy (Laverty and Williams 2000). This report emphasizes that the stakes are high, “Without increased restoration treatments in these ecosystems, wildland fire suppression costs, natural resource losses, private property losses, and environmental damage are certain to escalate as fuels continue to accumulate and more acres become high-risk.”

Washington has over 1.9 million acres of forestland that contain elevated levels of tree mortality, tree defoliation, or foliage diseases. Fire suppression costs have risen due to extreme fire behavior caused by high fuel loads and increased tactical complexities (DNR 2004). Opportunities have been identified to improve habitat qualities for sensitive species, restore forest health, and generate positive economic returns through an expansion of the DNR timber sales program (DNR 2004).

3.3 New Management Challenges for the DNR

3.3.1. The Sustainable Harvest Calculation
State law requires the DNR to manage the timber sale program for sustained yield. Periodical adjustments to forest acreages designated for inclusion or exclusion in the sustained yield management program along with new information on growth and yield performance warrant a recalculation of the state sustainable harvest forecast. This exercise was recently conducted for the western Washington forestlands and multiple alternatives were subsequently presented to the Board of Natural Resources for review. After examination of a spectrum of potential harvest strategies, the Board of Natural Resources, in 2004, selected a management alternative based upon innovative silvicultural approaches to increase production of both complex forest habitats and trust incomes. The projected harvest volume under the newly adopted management alternative for western Washington state forest lands is 597 million board feet per year (DNR 2004). The average harvest from western Washington DNR forest lands from 1998 to 2002 was 480 million board feet per year (DNR 2004). The DNR is currently developing long-term sustainable harvest calculation alternatives for eastern Washington for submission to the Board of Natural Resources for review in the next biennium.

3.3.2. HCP Amendment
The DNR recently submitted and was granted an amendment from the federal government to the state HCP for three sub-landscape areas in the Klickitat Planning Unit within the SE administrative region (Yakima and Klickitat Counties). Because of serious forest health problems in this area, it was determined that habitats for the northern spotted owl were in jeopardy and that new management approaches were needed. Following two years of consultation, a modified, ecologically sound, and operationally feasible strategy was agreed upon whereby the DNR would employ selective harvest activities to protect and restore northern spotted owl habitats. An increase in annual harvest volume of 20 -30 million board feet per year for 5 to 7 years is anticipated as a result. A large portion of this harvest volume may be comprised of smaller diameter trees from suppressed stocks (DNR 2004).

3.3.3. New Harvest Flexibilities
The traditional state timber sale arrangement involves the auction of cutting rights to standing timber within a defined boundary. The winning bidder is responsible for the removal of the timber. In 2004, the Washington State Legislature passed into law SB 6144. SB 6144 states that the DNR may initiate contract-harvesting activities and silvicultural treatments for the purpose of improving forest health. SB 6144 creates a contract-harvesting revolving account; expenditures from which may be made by the DNR for payment of harvesting and silvicultural treatment costs necessary to improve forest health. Upon completion of timber removals, decked logs are then sold to the highest bidder at auction. The revolving account is reimbursed from the proceeds of any log sales that develop from these activities. Net revenues in excess of costs are then distributed to trust beneficiaries. The DNR may retain 25% of net revenues to cover administrative costs. This new law enables the DNR, for the first time, to undertake forest health projects with some opportunity for cost recovery; where otherwise the timber removal costs might have been prohibitive (Washington State Legislature 2004). It is anticipated that forest health activities may generate a harvest volume of 30 million board feet per year in addition to the regular timber sale program. Many trees harvested to promote forest health will be smaller diameter suppressed stock.

3.3.4. Marketing and Sales
For the last several years the DNR marketing and sales department has been developing new ways to improve effectiveness of timber sale offerings. There is increased emphasis on the recognition that timber purchasers are valuable DNR customers. A service-oriented focus has been established to better serve purchaser needs. Aggressive promotional strategies have been employed both in state and out of state such that an increasing number of potential purchasers are being made aware of DNR timber sale opportunities. Improvements are evidenced by increased operational efficiencies, reduced costs, and improved returns to the trust beneficiaries (Tweedale 2004, Independent Review Committee 2004). Marketing changes include the shortened contract lengths for some sales, increased pole sales, management of wood flow timing to the market, and contract harvesting to provide different product mix availabilities. These innovative marketing approaches have received praise by timber purchasers, the Board of Natural Resources, and the Independent Review Committee to the Commissioner of Public Lands. However, continuous quality improvement of a marketing program (Walton 1986) with flexibility to accommodate shifts is product volumes, types, and customer needs requires ongoing informational assessments and strategic re-evaluations. An adaptive operational framework is needed and periodic consideration of multiple dynamic influences at many scales is required. For the DNR to increase harvest activities, additional personnel will be needed to replace retirees and to expand operational capabilities. Timber volumes to become available for the statewide DNR harvest as a result of recalculation of the sustainable harvest target on the west-side, modifications to the HCP in the SE region, and forest health activities in NE and SE are expected to increase available regional timber supplies by 100-150 MMBF per year. Continued sensitivity to purchaser preferences and innovative approaches to timber offerings will help to insure that DNR timber sales attract aggressive bidder interest and produce maximum economic return to trusts.

3.3.5 Shrinking Resources
The complexities and costs of managing forests have increased dramatically for the DNR in the last two decades but revenue returns in real dollars from harvest activities have dropped well below historic averages. Additional trained natural resource management professionals are needed to expand the present workforce to meet increased harvest targets and to replace the current wave of “baby-boomer” retirees. Recent DNR reports suggest that the current management fund deduction of 25 percent of gross timber sale receipts is inadequate to address current work load and human resources challenges. If adequate funding is not available to plan, prepare, and implement forest health and other timber management activities then future harvest volumes and trust revenues will fall short of projections. At stake are millions of dollars of trust revenue