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U.S. Endowment for Forest Products Industry & Communities 

January 31, 2014
Author: Suz-Anne Kinney
“Structural changes in the United States (U.S.) forest industry have undercut support of the science and technology required to maintain a competitive position. Forest products companies’ spending on research and development (R&D) has fallen. The research arms of forest industry trade associations have struggled. Half of the South’s university forestry research cooperatives, whose work enabled the productivity gains of the 20th century, have been terminated. Public sector R&D investments are also declining.

Foreign competitors in the global marketplace, meanwhile, are continuing to invest in R&D, to the detriment of the U.S. Finland is developing higher-value products from wood waste. The Confederation of European Paper Industries is focused on reducing manufacturers’ energy costs. And Canada has consolidated public and private sector research efforts into a national, coordinated nonprofit, FPInnovations. These and other competitors are likely to innovate and grow their market share and profitability faster than the U.S. sector, with its uncoordinated, underfunded efforts.”

So begins in a new report for the U.S. Endowment for Forestry and Communities titled, “A New Model for Forest Sector Research and Development in the United States.” Written by NC State University professor Robert Kellison, the report is a wake-up call for the forest products industry.

The report quantifies the reduction in R&D spending:

  • The wood products industry invests 0.7 percent of total sales.
  • The pulp and paper industry invests 0.5 percent of total sales (half of this total is spent by just one company).

Compare these totals to other industries:

  • The US textiles industry invests 0.7 percent of sales (despite the industry’s decline since so much textile manufacturing now occurs overseas).
  • The average investment in R&D by all manufacturers in the US is 3.4 percent of sales.

While we recommend you read the full report at the above link, here is some of the detail behind the report’s first paragraph.

Causes of R&D Spending Declines

The report attributes the reduction in R&D spending to the structural changes that have occurred in the industry:

  • Integrated forest products companies, to protect themselves from buyers who began purchasing pulp and paper companies and then breaking them up, began buying campaigns—essentially loading themselves up with debt—to make them less attractive to these investors. An example of this is the purchase of Union Camp and Champion by International Paper. According to the report, in 1998, IP had 250 employees in R&D, Union Camp had 120 and Champion had 100. Once the consolidation occurred, however, R&D employees totaled 250. By 2005, when IP divested itself of its timberland, the number was reduced to 100; since 2005, there are fewer than a dozen IP employees focused on R&D.
  • TIMOs and REITs, which by 2000 had purchased roughly 26 million acres of timberland from pulp and paper companies, concentrate on returning value to investors; their investments in R&D are minimal, and what they do learn, they tend to keep to themselves.
  • Public–private research initiatives have either been defunded or struggle to maintain funding. One example of this can be seen in public–private research cooperatives, which are funded by industry and conducted by universities. Because of funding issues caused by bullets 1 and 2 above, 11 of the 23 cooperatives have been terminated.
  • Federal funding for the USDA Forest Service Research Stations and the Forest Products Laboratory has declined and the stations have been consolidated.

Proposed Solution to the Problem

This report does not stop with the identification of the causes of the problem. Kellison recommends that “jointly funded and directed” public–private research partnership be formed. Funding for these efforts would come from the industry through commodity check-off programs, like those for paper and softwood product marketing currently underway, and federal matching dollars. According to Kellison, these partnerships could focus on “green building, wood-to-energy, advanced pulping technology, forest restoration, forest inventory and analysis, and other areas of national importance to the forest sector and associated industries.”

“Without a commitment to R&D,” the report concludes, “America’s once-robust forest sector will continue to decline, with unfortunate consequences for forest health and condition. A new, sector-wide, coordinated approach is needed to ensure a brighter future—a resilient model that picks up where 20th-century ideas left off and works for the 21st century.”

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