Good markets for Indi-ana’s high-quality hardwood timber will remain a significant source of periodic income. Globalization, however, is driving a major restructuring of the domestic markets for hard-wood products. As a result, deflated average prices for timber have been below the long-term upward trend line for the last several years. Increasing the productivity of timber stands through timber stand improvement practices can make up for part of the decline, but differentiation of Indiana hardwood products by quality, service, and product mix activities is need to retain domestic and overseas market share. Differentiation through green certification would provide immediate market leverage in the primary sector – lumber and veneer. Mass customization – providing consumers with tailored furniture and fixtures with a one to two week turnaround, unachievable by Asia producers – would recapture domestic market share from Asian manufacturers.

Impact of Globalization

The hardwood industry has faced competition from Asian furniture manufacturers and raw material suppliers since the early 1990’s. The industry responded by closing inefficient operations and increasing productivity at those remaining. Decreased demand reduced timber harvests and most prices. Demand for green certified wood products has increased; however, Indiana’s industry has lagged in recognizing this opportunity.

Next 2-3 Years

The market for green certified primary and secondary hardwood products will continue to expand. Servicing it requires certification of Indiana’s forests and of the chain-of-custody from the forest to final consumer products. There is also a growing market for wood products acceptable under U. S. Green Building Council’s LEED standards. Improved efficiency in the primary sector will be driven by increased log conversion efficiency. Logs are the largest cost factor for both lumber and veneer. This will be achieved by increased log sorting and merchandising based in part on x-ray scanning for internal defects.

Policy Options

Indiana’s hardwood industry will remain competitive if it has the information and portfolio

of resources needed to adapt. ISDA, in partnership with the Indiana Hardwood Lumbermen’s Association, Forest Industry Council, Purdue University, IDNR Division of Forestry, and other stakeholders, make needed information available. Strategic planning should be conducted to structure primary and secondary sector markets to maximize value added as competition increases for wood raw materials for biofuels and traditional end uses. On-going market development programs should be continued.

Timber production – The policy focus should be on meeting landowners on their terms with the information needed for them to balance their values with those of society at large and the wood products industry. Owners of tract of 10 acres or more who are interested in timber production must come to grips with green certification.

Timber and log procurement – Although owners selling with the assistance of a professional forester receive a higher price than those taking the price offered by a first-offer single buyer, the viability of the industry is determined by the average cost of timber and logs for individual fi rms. Loggers and mills are caught between a highly elastic lumber market and an inelastic timber and log markets. The resulting cost squeeze is a significant factor in the downsizing of the industry. Policy options must be explored that increase the use of professional foresters in the management and marketing of timber and keep timber and logs affordable. Opportunities to reduce the high overhead cost of timber procurement should be investigated.

Harvesting – Loggers must become more sophisticated to remain profitable. However, there will continue to be a role for under-capitalized operators who enter and exit the industry based on other employment opportunities. Higher unit costs result from harvesting ever smaller tracts and having to merchandize to a larger variety of log buyers. Increased costs will also result from chain-of-custody certification that requires BMP training and continuous documentation of operations. Except in areas of the state dominated by flat-woods, the logging operations have not fundamentally changed since the introduction of rubber-tired skidders. Trees continued to be felled and bucked by on-the-ground chain saw cutters subject to risks not incurred by operators in the cabs of modern automated logging equipment. Opportunities for

use of modern equipment should be explored.

Lumber industry – Increased automation is required to reduce labor and raw material costs. This generally means increasing mill capacity; however, there will continue to be role for small capacity mills located close to the source of logs and shipping mill-run green lumber to concentration yards.

Veneer industry – Mills have adjusted to export demand by changing slicing, trimming, and packaging practices; however, additional adjustments may be needed, including slicing thinner. Most important, they must have access to certified logs and receive chain of custody certification to retain existing markets that now require certified products.

Wood residue utilization – Value-added opportunities for wood byproducts can be supported — direct conversion to energy, cellulosic ethanol, landscaping products, and other uses — without competing for future supplies of high quality by utilization of harvesting residues. There is a need to match by-product sources and processors with competitive hauling cost. There is also a need to provide the information necessary to source raw material directly from natural stands and plantations while maintaining balance with quality timber management practices. Logging equipment to harvest timber as a biofuels source should be explored.

Specific Options

Timber – (1) Support IDNR Division of Forestry’s effort to increase the acreage of FSC-certified private forest land using group certification. Promote certification on other private lands with cost share payments for acreages above a specified minimum. (2) Facilitate markets that provide payments for environ-mental services from forest land. (3) Promote green building standards to increase demand for locally grown wood products. (4) Promote the development and manufacture of certified dimension lumber for local markets. (5) Broaden the definition of “agriculture” for property tax assessment purposes to reflect multiple use management of forest land. (6) Promote the use of professional forestry assistance. (7) Explore alter-natives to reduce the overhead cost of timber and log procurement.

Logging – (1) Facilitate training for loggers in BMP’s and chain of custody certification. (2) Investigate the potential for increased mechanization of logging. (3) Investigate tree-length logging with bucking at concentration yards to achieve economies of scale required for log scanning, biofuels, and unitized shipments of logs sorted by end use.

Lumber – (1) Investigate ways to assist firms to become more efficient in sourcing, processing, and targeting market niches, including certified markets. (2) Promote chain of custody certification for mills producing grade lumber and certified hardwood dimension lumber. (3) Seek opportunities for fi rms to partner in raw material procurement and other mutually beneficial ways while maintaining legal autonomy. (4) Expand the existing branding program to include certification logos for qualifying firms.

Veneer – (1) Promote chain of custody certification. (2) Encourage firms to participate in the Indiana certified branding program, and incorporate certification logos for qualified fi rms.

Furniture and fixtures – (1) Facilitate the adoption of mass customization for fi rms of all capacities. (2) Promote chain of custody certification.