Northern Minnesota's Wood Products Cluster

By Nate Dorr
with contributions from Bryan Lindsley, Bonnie Stechman, and Randy Back
October 2008

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Historical Perspective

Northern Minnesota’s wood products cluster can be thought of as an evolution in Minnesota’s historical logging and lumber cluster. During the logging boom at the turn of the twentieth century, there were 60,000 lumberjacks, sawmill workers, and wood production workers combined [1].Annual timber harvests during 1900 was at 4.7 million cords, which then decreased significantly to under one million cords in 1950. Recently the timber industry has experienced a rebirth and is back up to 3.9 million cords per year as of 2007. Born from the timber industry were lumber yards, trucking, sawmills, and other wood product manufacturing.

Defining the Wood Products Cluster

The wood products industry cluster is characterized by two major areas of production, primary processors and secondary processors. Primary processors produce dimensional lumber (2x4s, 2x6s, and others), plywood, oriented strand board (OSB), and other products directly manufactured from logs and timber harvests. These producers rely heavily on local timber stands to remain competitive, but are facing high stumpage prices because of a shrinking supply of wood. Secondary processors produce products like wood flooring, cabinets, furniture, windows, doors, trim, molding, interior paneling, exterior siding, and other finished wood products. This portion of the cluster relies more on imported wood and other non-wood materials to create a higher value-added product. Both processor types share a developing wood residue market. These wood residue products (e.g., sawdust, wood shavings, bark, and other “scrap” materials) are increasingly marketed and sold as inputs to energy, agriculture, pharmaceutical, and other industries.

Data for this wood products cluster analysis is limited to Wood Products Manufacturing (NAICS 321) in northern Minnesota, defined as the Northwest and Northeast Planning Regions. Activities under this classification include sawmills, wood preservation, hard and softwood veneer and plywood, oriented strand board (OSB), engineered wood member and truss, reconstituted wood, wood window and door, cut stock, planing, resawn lumber, flooring, wood container and pallet, manufactured home, prefabricated wood buildings, and other miscellaneous wood product manufacturing.

Current Conditions

Employment in the cluster has shown a decline of over 700 jobs in the last seven years (see Graph 1). Connections to the slumping housing market, capital investments in automation, increased international competition with Canada, China, Brazil, and others, as well as the shortage of local timber for primary processors have all contributed to job loss in the wood products industry. The wood products industry has been compared to the agricultural industry, where many small firms are trying to compete with a few larger companies. This comparison is especially relevant among primary processors which are tied to the shrinking local timber supply.

Despite the loss of employment, many manufacturers in northern Minnesota continue to stay ahead of the curve through innovations or narrowed market focus. Custom and high-end products helped some secondary processors stay out of the turbulent tides of the housing crunch, while increased capital investments help primary processors shave seconds off production time, producing more commodities faster. Reusing previously wasted materials has reduced operating costs at many plants through co-generation heating sources. Selling the wood residue materials has also replaced disposal expenses with revenues.

The wood products cluster remains highly concentrated in the region when compared to national employment shares (see Table 1). Highly concentrated industries like information technology in Silicon Valley, for example, have a competitive advantage from a high number of skilled workers in that segment of the economy. Wood product manufacturing in northern Minnesota has nearly four-and-a-half times the national employment concentration. These specialty occupations would include woodworking machine setters and operators, sawing machine setters and operators, carpenters, machine feeders and offbearers, log graders and scalers, logging equipment operators, and millwrights.

Related & Supporting Industries

Although it’s difficult to break out exactly how much each supporting industry is dependent on the other, the cluster concept works well at showing all the elements required from harvesting a raw material to selling the product. The wood product cluster is inclusive of more than just wood product manufacturing. Supporting industries to this cluster include forestry and logging, residential and commercial construction, materials moving and transportation, machinery manufacturing, renewable energy, metal manufacturing, education, wholesale and retail sales, pulp and paper manufacturing, and even chemical, biomedical, nanotechnology, and biology activities. Looking upstream at the supply chain and downstream to the potential markets helps place these activities in the larger context of the regional economy.

Workforce Issues

Changes in the production processes have impacted workforce needs. Workers trained in automation and computer controlled processes are in high demand. Many times employers are forced to enlist the help of high priced trainers to develop these skills among their workforce since few colleges offer these specialized training programs. For larger wood product manufacturers, workers with the skills to improve automated processes and increase efficiency can earn a starting salary at or above $75,000 per year. These automation skills also benefit other automated manufacturers, not just wood product manufacturers.

A second workforce issue is the public’s misperception that forestry and forest-related jobs are dead. On the contrary, many industry professionals have developed recruiting strategies and training programs to promote these occupations. In the Bemidji area, for example, a hot spot in the wood products cluster region, the Bemidji Area Forest Advisory Council is working to establish a forestry program at Bemidji State University. Job opportunities range from the Federal Forest Service level, to Minnesota’s DNR, to county land managers, to private land owners tied to the timber and wood products industry.

A final workforce issue is that large employers in the cluster are often better able to recruit skilled workers than are smaller processors who often cannot compete on wages and benefits. The best workers tend to acquire their training with a small company and then move on to a larger company or to by-pass the small companies all together. This attraction of skilled workers to larger firms goes beyond the wood products cluster, however, to include recreational vehicle manufacturing, wholesale trade, utilities, and other sectors of the economy, making it difficult for small employers to compete.

Final Thoughts

Primary processors such as lumber and plywood manufacturers are restricted by a variety of factors. The main limitation is the availability of local timber. Even the largest landowner in the State of Minnesota (Potlatch, which owns 330,000 acres) cannot supply even 50 percent of their own timber for production. Local manufacturers must access both public and private resources to remain competitive. A shortage of timber has pushed up stumpage prices, squeezing the margins of small producers. Importing timber from outside a 40- to 200-mile radius is cost prohibitive for many primary processors. As a result, larger producers are increasingly edging out small producers, much as they are in the agricultural industry.

Secondary processors such as windows, doors, flooring, and other finished wood products are doing better in comparison. These manufacturers are using a variety of material inputs (wood, metal, plastic, glass, hardware) and are adding greater value to their end product. Unlike primary processors, secondary processors are importing wood from Oregon, New Zealand, Brazil, Chile, and other places to meet the demands of discerning customers. Tariffs on goods sold in Canada have a negative effect on the competitive advantage of local secondary wood processors.

The wood residue market, shared by both primary and secondary processors, consists of sawdust, wood shavings, bark, wood chips, and other previously wasted materials. Now these materials are vital inputs to a budding industry with great potential. European demand for wood pellet energy sources has placed a high value on previously untapped waste byproducts like sawdust. Similarly, wood shavings are used in livestock and poultry bedding, where the pine resin is found to have anti-bacterial agents protecting the spread of diseases among livestock. Bark and wood chips are used as landscaping materials. Water from the wood drying phase of production is even recaptured to fill plant boilers and cogeneration units. Base chemicals are being extracted from wood shavings, tree roots, and other wood residue sources and are used in the cosmetic, pharmaceutical, and food additive industries. Limbs and tree tops are now considered viable inputs to biomass energy production.

In short, the potential for wood products in the new millennium is limitless.

 [1] Minnesota Historical Society, Forest History Center, Forests Today http://www.mnhs.org/places/sites/fhc/foreststoday.html

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