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Brattleboro - Despite the importance of the forestry industry to Vermont's economy, fundamental shifts in the market for low-grade wood threaten the survival of many small businesses and the viability of the state's forests.

"We manage our forests for all kinds of things including durable wood products," said Michael Snyder, Commissioner of Vermont Forests, Parks and Recreation. "We specialize in high-grade, high-value-added wood products. In fact, they are world renowned. But in order to grow that high-quality product, we need to manage the woods."

And managing the woods entails - just like cultivating a garden - pulling the weeds, said Paul Frederick, Wood Utilization and Wood Energy Project Leader for the Vermont Department of Forests, Parks and Recreation. "We need to weed out the garden to let the healthier trees utilize the space. If we don't have the markets for the soft wood, that work is very difficult."

According to the National Forest Service, there are 88 different tree and shrub species in Vermont, the most common of which are beech, birch, maple, ash, aspen, oak, fir, spruce, hemlock, brambles, raspberry hobblebush, viburnum, and spirea. Hemlock is the leading softwood species, often found growing with eastern white pine. Balsam fir and spruce are the primary species used in the manufacture of wood fiber. Of the hardwood species, sugar maple is the most prevalent, followed by American beech, red maple, yellow and paper birch, and white ash.

"Forest products are an economic engine in Vermont and are responsible for $1.4 billion every year," said Snyder.

Sam Lincoln, who operates Lincoln Farm in Randolph Center, said the softwood "weeds" in Vermont traditionally have gone to mills in Maine for the production of paper. But the market for softwood pulp has all but disappeared because those plants are shutting down.

"The market for these products in the East is basically unavailable to any loggers in Vermont," said Lincoln. "Lost tons of processing capability for low-grade timber is four million, the equivalent of 125,000 tractor trailer loads annually."

It's not just softwood that is used for pulp. While the bottom third of a hardwood tree is often sent to lumber yards such as Cersosimo and Allards in Windham County, the middle third is split for firewood or pulped for shipment to mills in New York or Maine. Some of that middle section is also chipped and used in boilers such as the one installed for heat and hot water at Brattleboro Union High School. The top third of the tree is also chipped, but usually shipped to biomass plants, such as the Joseph C. McNeil Generating Station in Burlington or the plant in Ryegate, where the chips are burned to produce electricity.

While the top third of softwood trees can also be shipped to biomass plants, in the past, the rest of the tree has been pulped and shipped out to make paper.

Snyder, who is also a licensed forester with more than 30 years of experience, said that until recently, Vermont's system has worked effectively, both for managing forests and creating jobs.

"These pulp mills are shutting down, largely due to global forces," said Snyder. "While people hear that those mills are closing in Maine, they don't realize that almost one million tons of pulp wood leaves Vermont and goes to Maine."

Historically, the market for pulp wood has been shrinking, said Snyder, but now it is almost non-existent. "This is the latest in the long, slow unraveling of the forest products industry in northern New England. Foresters across Vermont are asking themselves what are they going to do when the next harvest comes around."

It's not only the forest industry that is threatened, said Snyder, but a culture that has characterized Vermont for 200 years. "Vermont has a culture and an ethic of working with the land, but that is becoming less and less true."

While Vermont still has a strong brand that is recognized around the world, said Snyder, that brand has to be vigorously maintained and that includes proper forest management. And Vermont's forests aren't just about hardwood and softwood, but also about tourism, which brings in another $3 billion a year. It takes a concerted effort to preserve the reason why many people visit Vermont, not just during foliage season, but all year round, said Snyder.

"Our best hope for holding our forestland together is forestry management," said Snyder. Without a marketplace for high-grade and low-grade products, he said, that goal is difficult to achieve. "The good news is, there is a growing sense that Vermont is forest strong and an understanding that forestry supports that. But if there aren't mills, loggers and truckers making a decent living, the whole thing collapses."

Factors outside the control of Vermonters are depressing the market, including the strength of the dollar, which makes paper products from overseas cheaper, and the drop in prices for fossil fuels, especially natural gas, which makes it cheaper to produce electricity or to heat homes and businesses.

"All these forces came together in one huge collision," said Lincoln.

A recent meeting in Bradford was meant to bring together service providers, policy makers and businesses and update them on the challenges that foresters are facing. In a paper presented during that meeting, Lincoln noted that the drop in both price and demand for forest products hurts those who have invested heavily in the capital equipment needed to extract the high percentage of low-grade timber available on most woodlots.Lincoln's operation produces between four and six tractor trailer loads per day, 75 to 80 percent of which is low-grade timber. Prices for those products have dropped from 33 to 75 percent in the past 14 months and the demand is nonexistent for some of them and extremely limited for most others, said Lincoln.

In the past, Vermont foresters were delivering 10 loads of chips every two week to mills, but now that number is only one load, according to Lincoln's presentation.

"Based on current delivered prices for pulp and chips from our central Vermont location, a typical hardwood harvest for us with a standard mix of logs, pulp and chips, the gross proceeds to run the job, after the landowner and trucker have been paid, are down $912 per day," noted Lincoln in his presentation. "That reduction brings us well below our break-even point."

That all adds up, he said. For example, following a harvest in August, Lincoln lost $5,700. "Based on these numbers and detailed historical financial data, I believe I am saving $13,000 to $15,000 per month by parking my equipment and not producing a high volume of low grade timber," he noted.

When equipment is idle, said Steve Hardy, of Green Mountain Forestry, he has no work for his employees, who depend on their paychecks to support themselves and their families.

"A business like mine has been profitable and has been paying good wages to my employees. But now we are shut down and not producing."

One way Hardy, Lincoln and other foresters could get back up to full production is utilizing waste wood to produce electricity, but one of the major obstacles to that option is the Vermont Public Service Board, which must weigh efficiency when approving new electric-generating facilities in the state.

"The Public Service Board is saying that at 23 percent efficiency, of the four trees you cut down you might as well throw three away," said Hardy. "Because of that, the biomass plants haven't gotten to Act 250. It's the Public Service Board not issuing certificates of public good that is the problem. The board hasn't been able to get past the lack of efficiency or the greenhouse gas accounting."

And large biomass plants have run into opposition around the region, including in Springfield, where a proposal never even made it to an Act 250 hearing.

While state regulations allow for incentives for wind and solar, those who use wood as an option aren't afforded the same incentives, a slight that is hurting the forestry industry.

"We need to shift our emphasis and put wood on an equal footing," said Hardy. "Our energy policy needs to reflect that we want to use our own wood to heat ourselves."

Hardy said statewide tax incentives are needed for manufacturers who want to produce pellets and for consumers who want to use pellets and split wood for heating.

Jared Duval, Economic Development Director at the Department of Economic Development, said if Vermonters were using more wood, that money would stay in the state and benefit the local economy."When Vermonters are using fossil fuels to heat their homes, 80 cents of every dollar leaves the state."

However, changing how the PSB considers renewable projects or providing incentives is up the Legislature. Other things the Legislature needs to look at during the session that begins in January is a sales tax exemption for equipment purchases - exemptions already exist for the purchase of agricultural equipment - and a look at why workers compensation rates are higher in Vermont than in neighboring states, said Duval.

Workers compensation rates have jumped 38 percent for loggers in 18 months, after steady increases in the past 48 months. The Department of Financial Regulation and insurance companies have not been able to readily provide answers to causes of rate increases, according to Lincoln.

"We need a policy that gives us the ability to pay workers compensation premiums in a manner similar to payroll tax, as we use it, on a bi-weekly or quarterly basis," wrote Lincoln in his presentation in Bradford.

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"Upfront premiums due or post audit invoices are enormous slugs of cash taken out of our operations. We can't recoup the post audit premium invoices from our past contracts."

Duval said one of the solutions could be large-scale co-generation facilities, which produce both electricity and heat and hot water. At one time, this type of system was being considered in Brattleboro for a downtown district heating and hot water system, but it never made it past the discussion phase.

Pellet mills, of which Vermont currently has two with a third set to open, could also provide a market for soft and waste wood. But those two operating mills only use about 25,000 tons a year.

"In terms of overall scale, it's still not enough to replace the capacity lost," said Duval. "When Verso Paper in Jay, Maine, decreased its production, approximately 800,000 green tons of low-grade material is not being purchased."

While options such as eliminating the sales tax or adjusting workers compensation can help, they are short-term solutions, said Duval. "The only durable solution is going to be market development and creating new demand for local wood that is not reliant on just the pulp and paper economy."

"We are not going to build new capacity to process low-grade timber in the next six months," Lincoln told the Reformer.

Frederick said along with the previously mentioned factors, local foresters are also recovering from the housing boom collapse in 2008. "An enormous amount of wood ends up one way or another in residential construction - framing, flooring, cabinets and millwork - and when we have a depressed housing market, there is less demand for lumber. While production of hard wood products has bounced back to some extent, it's not anywhere near the level of the mid-2000s."

However, foresters across the Northeast and the United States are working to address the issues facing the industry, said Frederick.

Some good news for foresters is a trend to use wood in the construction of multi-family and multi-story buildings, said Frederick. There is also research into breaking down wood to create products that are similar to those created with petrochemicals, such as cellulose-based plastics, said Frederick. But those alternatives might not be available in time to save local foresters.

It's not just the foresters that might be affected, noted Lincoln, but the health of Vermont forests.

"Most people who own land, harvest it responsibly and are motivated to improve the health of their land and forest," said Lincoln. "That means cutting low-grade wood."

While Vermont mills such as Allard and Cersosimo have the capacity for hard wood, said Lincoln, the ability to process the low-grade wood that results from hard wood harvesting is minimal.

"The growth rate is two times the harvesting rate," said Lincoln, meaning the low-grade wood will push out the high-grade wood. A responsible forester goes in and selectively prunes the forest, taking out the trees that have no market potential as a high-value tree, he said.

"Sitting still or high grading wood lots is irresponsible and not the way we build the future," said Lincoln. "How could I knowingly go to a landowner's woodlot and high grade it today when 20 years from now I know there won't be any high-quality wood to harvest? Unmanaged forests do not provide the outcomes that society desires and managed forests must have a marketplace."

It might take two years for the market to stabilize, said Lincoln, but many foresters might not be able to hold out that long.

"We are looking at a new normal unless the state aggressively pursues in-state processing capacity of low-grade wood," said Lincoln.

Bob Audette can be contacted at 802-354-2311, ext. 160, or Follow him on Twitter @audette.reformer.