REGIONAL- While it’s no secret that the logging industry in northeastern Minnesota has been laboring under a decades-long decline and razor-thin profit margins, those still hard at work cut for today and plan for tomorrow.
With tomorrow in mind, loggers snapped up nearly 100 timber permits in Department of Natural Resources auctions in the first week of June 2020, secure in the knowledge that there would be a market for that timber as they shelled out the 15-percent down payments on each tract they bought, just as they had for all of the prior auctions that year.
But the very next week, that security was pulped for anyone counting on the spruce and balsam fir they expected to harvest. On June 9, the Verso mill in Duluth announced it was shutting down, decimating the market for those species. The outlook for tomorrow suddenly became bleak.
“A lot of loggers bought a permit thinking ‘I can deliver 10,000 cords of spruce to Verso each year,’” DNR Timber Program Supervisor Jon Drimel said. “And then the announcement came out and everyone looked at each other saying ‘Now, what are we going to do? We had all these permits bought.’”
Mike Birkeland, Executive Vice President of the Minnesota Timber Producers Association put some sobering numbers to the impact of Verso’s closure.
“There is a significant amount of money on the table here, more than a million dollars that has already been paid to the state of Minnesota in down payments for auctions at timber sales,” Birkeland said. “Verso was using nearly 50 percent of the spruce and balsam in Minnesota. Because of the Verso mill closure, there are just very few markets now for that spruce and balsam.”
Duluth officials have been scrambling to find a buyer for the Verso mill, but a recent revelation that they may have a company interested in converting the mill to produce tissue is of little solace to loggers.
“What we’ve learned is that it’s all recycled feedstock, meaning paper, cardboard, whatever it might be, so tissue paper would have minimal if any impact on Minnesota’s logging industry,” said Scott Dane, executive director of Associated Contract Loggers and Truckers of Minnesota.
Outside of the Verso closure, COVID-19 also exerted a negative impact on the market for raw timber, as many mills have been forced to close at times, temporarily reducing or halting their production. And while the federal COVID relief bill passed in December included $200 million for the timber industry, some Minnesota loggers may have limited access to those funds. Applicants for relief have to demonstrate at least a 10-percent loss in 2020, but about two-thirds of the state’s harvest typically takes place between December and March. That activity in 2020 came before the impact of the pandemic took hold.
Legislative relief
The industry’s plight has not gone unnoticed by the region’s legislators. Rep. Rob Ecklund, DFL-International Falls, and Sen. Justin Eichorn, R-Grand Rapids, have introduced companion bills in their respective chambers that would provide some relief for timber permits. A bipartisan group of legislators have signed on to both as co-sponsors.
“A lot of these loggers had bid on state sales that had 30 percent or more of spruce and balsam to supply the Verso paper mill,” Ecklund said. “So, I talked to the advocates for paper producers and the Minnesota forest industry about how we could address this, and that’s how we came up with the legislation to get this going forward.”
The essential elements of both bills are the same, although some differences remain to be worked out. The three components in each bill, applicable to permits issued prior to Jan. 1, 2021, include:
• An automatic two-year permit extension, one year more than the DNR currently has the authority to grant.
• A full refund of 15 percent for permits where no cutting has taken place.
• For permits where cutting has started, a possible partial refund of the down payment, dependent on a calculation of what the DNR is owed for the value of the timber cut.
Ecklund said he had the DNR research permit sales for tracts with at least 30 percent spruce and balsam fir, and arrived at an estimate that it would take a $1.07 million allocation from the Legislature to take care of the potential refunds.
However, because of differences in the bills, that number could easily fluctuate. While Ecklund’s version uses the 30-percent mix as a cutoff, Eichorn’s cutoff is at 25 percent, which could make more permits eligible for a refund.
Dane also pointed out a significant difference in what timber permits would receive the automatic two-year extension.
“The extensions in the Senate bill are on all permits and the House bill is limited to spruce and balsam permits,” Dane said. “We need that to actually be all permits because the market impact evolved to the point where it pushed all the guys that would normally harvest spruce and balsam to other species and flooded that market. So those permits have been impacted as well. That’s why we want all permits to be eligible for two years.”
The bills not only have the support of legislators and the timber industry, but the DNR as well.
“The DNR is glad that Rep. Ecklund and Sen. Eichorn brought these bills forward because one of our customers is our loggers,” Drimel said. “You want them to be healthy and have a good logging industry because that is what gets our forest management done. Because everything we do is outlined in statute, having them bringing this forward is going to allow us to help them on our timber permits.”
Ecklund said the bills were about ready to go to conference committee.
“I’m certain it’s going to be in the House version of the environment bill, and I don’t know why it wouldn’t be in the Senate version either,” he said.
Expected impact
The usefulness of holding onto a timber permit and getting the automatic two-year extension to work it is pretty straightforward, Birkeland said.
“Extensions provide a little bit more time to get at wood that everybody’s looking for markets for,” he said. “Because there are very few markets now for those types of trees, the black spruce and balsam, we have more loggers cutting the same types of wood now, and the wood yards filled up pretty quickly at the mills this winter for other species as a result of that.”
Holding on to untouched timber permits for two more years isn’t as viable for loggers who need the immediate infusion of cash from a full refund of their down payments.
“It could be tens of thousands of dollars for an individual logger,” Dane said.
The greatest juggling act in deliberations will involve those permits where some harvesting has already taken place. Turning back a permit to the DNR doesn’t have a set value, as the down payment amount has to be balanced against the value of the timber already harvested. Some loggers will qualify for a partial refund, while others would end up owing the DNR money above that covered by the down payment.
“I think at this point the loggers would typically weigh their options,” Birkeland said. “It’s just hard to answer that question at this point in time, because that’s an individual decision for every logger.”
Whatever their choices, the DNR will have to go back and assess each partial tract that remains, State Lands Section Manager Andrew Arends said. Some may be suitable for putting back on the auction block, while some may need to be rebundled with adjacent tracts in order to be sold.
Still others may have been cut to the extent that the DNR will need to initiate restoration efforts.
“We will get it back into production one way or another,” Arends said. “That costs money instead of generating money, and we have limited money for those sorts of activities. We’ll do them where we need to, but it’s not a deep bucket to reach into and find funds for those sorts of contracts.”
Birkeland said his main concern is getting the best timber permit relief possible for loggers who continue to supply mills with the material they need to bring improved economic impact to their communities and essential products to consumers.
“We’ve got a logging community in Minnesota that is resilient, highly resilient,” Birkeland said. “They’ve had to adapt not only as a result of this, but over the years. But the bottom line is that they provide an important resource to mills, and the mills provide essential products for society. So, keeping the entire supply chain healthy is vitally important.”