The pulp and paper industry and Georgia's forest resource : an economic outlook / by Albert A. Montgomery and Robert L. Chaffin

GEORGIA FOREST RESEARCH PAPER

26
February, 1982

THE PULP AND PAPER INDUSTRY AND GEORGIA'S FOREST RESOURCE: AN ECONOMIC OUTLOOK

BY

ALBERT A. MONTGOMERY AND ROBERT L. CHAFFIN

Received

RESEARCH DIVISION CfORCIA
.FORESTRY,

MAY 3 1988
DOCUMENTS UGA LIBRARIES

GEORGIA FORESTRY COMMISSION

Digitized by the Internet Archive in 2013
http://archive.org/details/pulppaperindustr26mont

AUTHORS

ALBERT A. MONTGOMERY, Ph.D.
Professor and Senior Research Associate Contract Research Division Office of Services School of Business Administration Georgia State University

ROBERT L. CHAFFIN, M.B.A.
Professor and Research Associate Contract Research Division College of Business Administration Georgia State University

Ml TBI PIUP

PflPlB [IKlfflgTiW

D

PREPARED FOR
GEORGIA FORESTRY COMMISSION
BY
ALBERT A. MONTGOMERY AND ROBERT L. CHAFFIN

Georgia is the nation's leading produc-
er of woodpulp and paper and paperboard products, and leads the south in shipments of converted products.
Georgia's pulp paper and allied products industry is comprised of 168 plants, employing 27,000 workers at wages 40 percent higher than paid all manufacturing employees in the state.
Georgia's 16 primary pulp mills have a pulping capacity of 16,457 tpd, up from 13,778 tpd in 1970. These mills are clustered in the Coastal Plain Region.
Georgia's paper and board industry consists of 28 mills with an output capacity exceeding 16,000 tpd. Integrated mills produce daily 15,200 tons of pulp and 14,600 tons of paper and board products. Nonintegrated paper and board mills produce about 1,000 tons of products daily.

HIGHLIGHTS
Georgia's paper and paperboard converting industries consist of 124 plants, located mostly in metropolitan areas.
Georgia's dominance in world class mills is underpinned by the rapidly growing southern pine forest. Location economies dictates the siting of large mills close to the requisite wood supplies. The doubling of pine growth through improved forestry management will halve the wood supply areas of existing mills and shorten wood hauling distances by 30
percent.

Georgia's pulp and paper mills exhibit economies of scale that are incomparable with the competition in any region of the world. The Georgia industry claims seven mills with a pulping capacity of 1,000 or more tons per day. These mills have a replacement cost estimated at $300 million per 1 ,000 tpd of capacity.

Georgia's pulp, paper and board industries are dependent on nonindustrial forest lands for about 60 percent of present
and future wood requirements. In turn,
investment in expanded mill capacity is linked to investments by nonindustrial landowners in the future productivity of timberland.

Georgia's commercial forest can economically supply 909.5 million cubic feet of pine annually on a sustained yield basis at the average stumpage price of
$335/MCF prevailing in 1977. Based on current wood demands and the feasible
long-run supply of pine, the Georgia forest can support additional pulping capa-
city of 2,000 tpd. A future stumpage
price of $350/MCF would generate a wood supply capable of supporting 2,600 tpd in expanded mill capacity.
Georgia's forest resource is capable of
wood productivity gains of at least 10
percent, through restocking with superior seedlings and scheduled timber management improvements. At current stumpage
prices of $335/MCF this more productive Georgia forest would support expanded
mill capacity of 5,300 tpd, along with proportionate increases in the state's sawmills and plywood mills. This addition of 1.9 million tons annually to the state's pulp and paper mill capacity would generate $1.6 billion in industry investment and create 5,000 additional high paying jobs. National and international markets can readily absorb all the incremental pulp production that a managed more productive Georgia forest can sustain.

INTRODUCTION

This study evaluates the future of Georgia's pulp, paper, and board indus-
tries and the state's forest resource. The analysis focuses on the vital relationships between wood supply, improved forest management, and the potential expansions of mill capacity. The determinants of the future wood supply available to
the industry are interpreted. Future markets for the products of Georgia's pulp, paper, and board industries are assessed. Most importantly, scenarios are develop-
ed to show how forest investment today
can lead to the realization of long-run industry expansion potentials.

The most significant resource constraint upon the continued growth of Georgia's pulp and paper industry is the future pine timber supply. Continued
industry investments in plant modernization and expansion indeed depends upon
investments being made today by landowners in the regeneration and improved future productivity of the forest. At the rate at which forest management is cur-
rently accomplished by Georgia's nonindustrial landowners, it is problematical whether the future pine timber supply will support further industry expansion,
even though the existing forest may be

able to supply an expanded capacity for
a time.
Realistically, far more investment in improved forest management may be currently economically feasible than is being accomplished by nonindustrial land-
owners. In turn, these investments will assure a future timber supply that would enable Georgia's pulp and paper industry to eventually expand its capacity by as
much as 1.9 million tons annually beyond
the 6.1 million ton annually already in place or coming on line in the immediate future.

ECONOMIC CHARACTERISTICS OF GEORGIA'S PULP, PAPER AND BOARD INDUSTRIES
The principal reason for the exceptional growth of the pulp and paper industry in Georgia is the unique affinity between this industry and the southern
pine forest. In turn, the industry's poten-
tial for further economic growth depends in particular on the improved management of the southern pine forest as a renewable, multiple product, economic resource. But there are a number of other economic resource considerations which have affected this industry's growth, if not giving it a special economic advantage in Georgia and the South, and which stand as potential constraints on its future growth.
LABOR AND WAGES
In 1978, the average earnings of Georgia's paper and allied employees was $6.99 hourly, compared with a wage level of $6.52 an hour for workers in this industry throughout the United States. Moreover, the wages paid this industry's employees exceeded the wages paid to all Georgia manufacturing employees by
more than 40 percent. The high wages of the paper and allied products industry reflects the high productivity of its employees, due not only to their exceptional
skills but to the highly capital-intensive
nature of the industry. At these premium wage rates, as justified by the industry's high productivity, an abundant supply of labor is available to accomodate any fore-
seeable level of industry expansion. At the same time, these high wages
and the implied high production value added per employee signify that the
growth of this industry contributes much more to Georgia's economy than indicated by the number of its employees. Even
so, paper and allied products ranks as Georgia's ninth and the Atlanta metropolitan area's sixth leading manufactur-
ing employer; and its employment growth has been steady, if not spectacular. The industry employed 25,060 in 1970, 26,200 in 1974, and 27,000 in 1978 and is projected to grow to 29,530 in 1985.
WATER
Water is an essential, high-use resource i the manufacture of pulp, paper, and
board products. A pulp and paper mill
producing 1,000 tons of output per day
may use as much water as the population

of a city of one million. Although the quantity of water used in the manufacture of pulp and paper varies widely depending on the pulping process, this resource is a necessary input at every stage in the manufacture of pulp.
At the time of this study, water consumption data were available for seven mills which produced 9,165 tons of pulp daily. The combined water requirements of these seven mills was almost 200 million gallons per day. Even with these large gallonages, Georgia mills are highly efficient in minimizing water requirements through the reuse of water withdrawn for manufacturing processes. Gallons of water used per ton of output ranged from a
high of 48,000 down to a low of 3,125,
depending on the type mill and the pulp-
ing process used.
The water requirements of Georgia mills are satisfied by withdrawals from
wells and rivers and by purchase. Among
the Georgia mills studied the most frequently used sources of water are captive wells and a combination of wells and river water. Based on processes characteristic of existing Georgia mills, an average net withdrawal of 21 ,800 gallons of water is required for each ton of pulp produced, apparently much less than the national
average.
Water availability is not viewed as being a significant limitation on the location of new or the expansion of existing pulp, paper, and board mills in Georgia. Ground or river water supply considerations do, however, limit the choice of locations for future mill sites. Further, the cost of adequate water purification systems to meet effluent limitations guidelines will continue to be a major cost consideration in determining the economic feasibility of capacity additions.
ENVIRONMENTAL CONSTRAINTS
In real terms, the pulp and paper industry has been more extensively impacted by air, water, and solid waste pollution abatement regulations than most classifications of manufacturers. Between
1973 and 1978 total new plant and equipment expenditures by the pulp and paper industry ranged between 5.0 and
6.6 percent of capital spending by all manufacturing firms. Over this same period pollution abatement spending by the pulp and paper sector was equivalent to between 8.4 and 13.4 percent of abatement expenditures by all manufacturers. The year-to-year fluctuations in pollution control spending are influenced by government deadlines for compliance with pollution abatement standards.
Capital spending to meet pollution

abatement standards represents a real cost to the pulp and paper industry that, for the most part, neither expands capacity nor increases productivity. The expenditures mandated to meet environmental standards alone increased the prices of paper products by an estimated 5.5 percent between 1975 and 1978. Irrespective of their merits, mandated standards do cause product costs to rise and can result in the closure of marginal high cost mills. Further, compliance with environmental

standards increases the capital cost of
new and expanded mill capacity. In con-
structing a 1,000 tpd pulping facility it is estimated that capital expenditures to
meet EPA environmental regulations will
represent 12 percent of total mill costs. For its part, Georgia's industry has
programmed $1 12.1 million in capital expenditures over the 1979-81 period for environmental enhancement, $69.8 million for water and $42.3 million for air pollution control. These expenditures for pollution abatement represent 13.5 percent of all programmed capital expenditures for Georgia mills, as compared
with 9.9 percent of total capital expendi-

tures nationally.

If these large investments in environmental protection and the uncertainty of future governmental standards seem daunting for the growth prospects of the Georgia pulp and paper industry, it
should be kept in mind that the environmental constraint applies generally to the industry in the Nation and World. Insomuch as industry growth in Georgia and the South is advantaged by other factors, environmental costs will not be an impor-

tant limitation, per se. Rather, the economic impact of these costs will fall most heavily on competing regions, where mills are less efficient and of marginal profit-

ability.

ENERGY

The pulp and paper industry is energy intensive. Each ton of output from a pulp and paper mill requires about 35 million Btu's of energy. Thus, a 1,000 ton pulp and paper mill uses each day the energy equivalent, alternatively, of 5,600 barrels of oil, 1,300 tons of coal, 34 million cubic feet of natural gas, or 4,000 tons of bark or wood.
Confronted with rapidly rising energy costs and with the threat of interruption of purchased fuels and electricity, the pulp and paper industry has made substantial efforts both to conserve energy and to lessen its dependence on purchased energy. The use of hogged fuel derived
from wood residues by the U.S. pulp and
paper industry increased from 5.5 million in 1972 to 12 million tons in 1978. In

consequence, the share of the industry's energy requirements accounted for by
self-generation with wood residues in-
creased to 45 percent in 1978 from 41 percent in 1972. Concurrently, the industry's use of fossil fuel and purchased energy declined by 16 percent.
Following this national trend, Georgia's industry has been investing in fossil fuel conservation and in-plant generating facilities. Based on data from 13 major Georgia pulp mills, representing 92 percent of the state's pulp output, the Georgia industry is nearly 60 percent selfsufficient in electrical generation. Thus, over the long run, the availability of energy, per se, would not appear to be an important constraint on the industry's expansion. By the same token, the Georgia industry would not appear to be at a regional disadvantage even if the cost of energy continues to rise in the face of industry's investments in conservation and self-sufficiency.
CAPITAL INVESTMENT
Georgia's pulp and paper industry enjoys no material regional advantage or disadvantage with respect to the availability of water, environmental, energy, and labor inputs. The industry does benefit from two distinct locational assets: the forest resource and the concentration of its productive capacity in large world
class mills.
The Georgia pulp and paper industry is incomparable with its competition in any region of the world in that nowhere else is there concentrated in a comparable area so many of the world's largest pulp mills. The state has no less than seven
mills with a pulping capacity of 1,000 or more tons per day, including two mills larger than 2,000 tons per day. Equally important, Georgia pioneered world class pulp and paper mills. Except for periodic modernization, expansion, and annual two-week shutdowns for maintenance, some of these large Georgia mills have been operating continuously, 24 hours a day, for five decades. This history of operating success has yet to be matched by the newer large mills in locations outside of Georgia.
The economies of scale enjoyed by Georgia's pulp and paper mills give the industry an important regional economic
advantage over the typically smaller mills
of the competition. The economic advan-
tage of a large mill is that the required
volume of resource inputs into the pulp making process does not increase in pro-
A portion to the size of the mill. 1,000
tpd mill may require no greater number
of production workers than a mill proing one-third its output. Thus, the large

mill will have lower labor costs per ton of output. Similarly, a large mill will have lower energy costs per ton because of large-scale boiler economies and the economies of large settling ponds and air pollutant precipitators.
In order to recover the enormous capi-
tal costs associated with a large efficient
mill (estimated at about $300 million per
1,000 tpd of capacity), the production facility must be run continuously for as long as possible. The longer the time period over which the mill can be operated, the lower the capital costs per ton of output. This is because the costs of maintenance, modernization, and expansion at an existing mill will be less than for
"green" mill capacity in new locations.
Moreover, the prospect of a mill remaining indefinitely at a fixed site enables it to be profitably integrated with related economic activities. It will be recalled that the Georgia industry is highly integrated not only between pulp mills and paper and board mills, but vertically through the production of converted paper and board products. Georgia mills also evidence horizontal integration between pulp making, the production of
wood chemicals, and lumber products.
Integration enables the sharing of capital costs and enhances the profitability of an array of forest products.
Finally, there is the advantage of integrative economies that are external in the industry, particularly if there is a cluster of large mills in the vicinity. Given long operating periods at fixed sites, an industry comprised of large mills will attract industry suppliers and other support activities, enhancing capital recovery and economic returns over the long run. This support includes, importantly, the public and private investments necessary to develop the forest resource base of the industry.
REGIONAL STUMPAGE PRICES AND FOREST MANAGEMENT
The pulp, paper, and board industries in Georgia enjoy real wood cost advantages, despite higher pulpwood stumpage
prices, especially in the Coastal Plain Re-
gion. Lower wood costs at the mill are at-
tributable to economies associated with year-round harvesting, mechanized logging operations, an extensive transportation network, the high specific gravity of the southern pine, and the rapid annual growth of the pine forest.
From seedlings to pulpwood size in 15 years and sawtimber size in 30 to 35
years, the rapidly growing southern pine forest can sustain a large volume of annual timber supply close to the mill.
These distinct wood cost advantages un-

derlie the location and long history of successful operations by world class pulp mills in Georgia. In turn, the sustained pulpwood productivity of Georgia's
pine forest has made possible a high degree of industrial integration between
pulp mills, paper and board mills, and converted products plants in the state.
PULPWOOD
The nonindustrial landowner in the
Coastal Plain is assured of a future
pulpwood market because of the large
industry capacity in place. In contrast,
the future demand for pulpwood stumpage in the Piedmont Region is not expect-
ed to approach that of the Coastal Plain until there is a significant expansion of mill capacity in the region. It is a fundamental economic principle that the pulp-
wood stumpage price decreases as the dis-
tance from the mill increases, because of the incremental cost of transporting
wood to the mill.
This principle is illustrated by the data on pulpwood stumpage prices by region in 1977:
PULPWOOD STUMPAGE PRICE

Region

MCF

Cord

Coastal Plain
Piedmont Mountain

$211 168 100

$20
16 9

These stumpage price differentials are di-
rectly related to the accessibility of wood to existing mills. At the same time, the mill-delivered pulpwood prices vary but
slightly between the three regions, averag-
ing about $350/MCF or $33 per cord. Because of lower pulpwood stumpage
prices and higher acre costs of site preparation and planting, nonindustrial landowners in the Piedmont have been more reluctant to practice improved forest management. The 1977 plantation costs pertinent to nonindustrial lands were $87 per acre in the Piedmont and $77 per acre in the Coastal Plain. These market facts do not imply, however, that investment in site preparation and planting is economically unfeasible for the Piedmont landowner. Over a pulpwood rotation a planted stand in the Piedmont will yield twice the harvestable timber volume of an unmanaged stand. Indeed, in the absence of improved forest management investment, cutover pine timberland will likely revert to virtually useless hardwoods.

SAWTIMBER

Considering regional variations in management costs and stumpage prices, it is probably not economically feasible to

manage the Georgia pine forest under a pulpwood rotation regime. Under current market conditions it is feasible, however, to manage the pine forest in a multiple product context, including sawtimber and plywood logs as well as pulpwood. This is indicated by the price of sawtimber pine stumpage in 1977:

Region

Sawtimber Stumpage
Price per MCF

Coastal Region Piedmont Mountain

$614 464 313

On the average, then, sawtimber stump-

age is priced at about three times the re-

ceipts from pulpwood stumpage.

Multiple product cutting has a large

impact on the economics of pine forest

management in Georgia. Assume a pine

forest mix of 40 percent sawtimber and

60 percent pulpwood, and wood volume

of 1,000 cubic feet per acre. The timber

sales proceeds from cutting this multiple

product forest would be $286 per acre,

compared with $168 from a pulpwood

rotation. In turn, the investment in site

preparation and planting to assure future

wood supplies would require but 34 per-

cent of the multiple product timber sales

proceeds, as compared with a 58 percent

requirement from a pulpwood cutting.

Georgia's pulp, paper, and board in-

dustries will benefit from the multiple-

product management of the state's pine

forest. The higher return to the landowners will accelerate forest management

practices and enhance total wood sup-

A plies.

part of industry's pulp round-

wood needs will be available because of

the value of thinning as a sawtimber

management practice. Notwithstanding

longer hauling distances, the flow of

chips and residues as sawmill and ply-

wood byproducts can be delivered to

pulp mills as cheaply as pulp roundwood.

FOREST MANAGEMENT AND THE
LOCATION OF PULP MILLS

The economics of locating and sustain-
ing pulping capacity dictate that mills be
sited close to the requisite wood supplies.
Indeed, the margin for profit is small in
the assembly and hauling wood to the mill. The value adding characteristics of
the industry are accomplished by large reductions in the weight and bulk of the
wood fiber input. A ton of pulp weighs
less than one-fourth of the wood input.
In turn, the finished pulp is valued at
more than 13 times the stumpage value of the pulpwood used in its manufacture.
Improved forest management is critical in renewing the wood requirements of Georgia's pulp mills. The managed pine

forest can assure continuing wood cost
advantages to Georgia mills by locating
the wood resource nearer to the indus-
try's large mills.
PULP MILL WOOD SUPPLY AREAS
The relationship between pine forest management and the economics of mill location are depicted on Map 1. The
common points for the concentric circles
represent existing mill sites, except for the cluster of mills along the Georgia
coast. In determining the pulp mill wood supply areas it was assumed that the indicated daily pulping capacity was operated 350 days per year and that 1.25 cords of wood are processed to produce one
ton of pulp output. It was further assumed that 57 percent of the pine growth volume was harvested as pulpwood and 43 percent as sawtimber. In turn, about 30 percent of the sawtimber harvest is available to pulp mills as sawmill chips and residues.
The inner supply circle illustrates the shortened mill logging distance under a plantation management regime that harvests 1.0 cord per acre per year. The outer supply circle encompasses the land
area required to supply indicated mill
capacity assuming an unmanaged pine
forest yielding an annual harvest of .5 of a cord per acre per year.
This wood logistical illustration shows
that a doubling of pine growth through
forest management would halve the wood
supply areas of existing mills and reduce
wood hauling distances by almost 30 percent. As a corollary implication, improved forest management makes it possible to log a larger more economically viable mill at competitive wood costs with a much smaller mill.
EFFECTS OF SHORTENED WOODHAUL DISTANCES ON INDUSTRY
EXPANSION
The wood-haul shortening effects of forest management on the economic growth of the industry in Georgia are profound. Existing mills can expand pulping capacities without increasing the average distance of wood hauls and, thus, without incurring rising wood costs per ton of output for an increasing volume of wood supply. If existing mills do not expand
capacity to utilize fully the increased productivity of the pine forest, opportunities are created for the location of
new mills at the extremities of existing wood supply areas.
A significant expansion of mill capa-
city and Georgia's forestry economy is

dependent on the future supply of wood from lands at the extremities of the wood
supply areas of existing mill sites. In truth, the inclusion of all industrial and nonindustrial pine land in the Coastal Plain under sustained yield, plantation
management would not provide sufficient wood to log permanently the existing pulp mill capacity in the region. The ex-
pansion of pulping capacity in Georgia,
then, is dependent on investment by nonindustrial landowners located at considerable distances from existing mills, especially in the Piedmont Region of the
state.
INDUSTRY OWNED AND LEASED FOREST LAND
Industry owns or holds under longterm lease about 3.5 million acres of pine land in Georgia. The goal of a sustained yield, even-age management on this industry acreage has been about two-thirds realized and can be accomplished within a
decade.
Industry owned acreage alone, how-
ever, does not assure Georgia mills of a
future wood supply. Pulp and paper com-
panies are managing increasingly their woodlands on longer sawtimber rotations. This is an outgrowth of the accelerating integration of pulp, paper, and board mill operations with lumber, plywood and other forest products plants. In light of these development patterns, industry lands are capable of supplying only about
40 percent of the existing wood fiber
requirements of Georgia mills. Georgia's pulp, paper, and board in-
dustries are dependent, then, on nonindustrial forest lands for about 60 percent
of present and future wood inputs. In
turn, investment in expanded mill capacity is linked inextricably to investments by nonindustrial landowners in the future productivity of their timberland.
DETERMINANTS OF THE
FUTURE WOOD SUPPLY
The pulp, paper, and board industries are wood resource dependent. Because of the ownership distribution of the forest
land resource, the future of these leading
Georgia industries hinges on whether nonindustrial landowners expand the wood supply through forest management. The variables that will determine future wood supply include:
1. The expected stumpage price. 2. The current costs of forest manage-
ment. Management costs include site preparation, planting, and other forest practices. The alternatives to plantation management are natural stand forest management.

Map 1
Hypothetical Pulp Mill Wood Supply Areas
2125 TPD
Tenn.
3,755 TPD 8,395 TPD

3. The rate of interest or capital cost imputed to forest management costs. Capital cost will differ by public, industry, and nonindustrial land ownership classifications.
4. The ad valorem property tax appli-
cable to private forest lands.
5. The timber yield from pulpwood thinnings and final harvest. In turn, yields will vary by the choice of rotation lengths and management
plans applied to timberlands lying in various forest types, productivity and physiographic classes, regions, and ownerships.
6. The availability of land for pine forest management in each geographic region of the state. The availability of land is dependent on
existing conditions of operability and accessibility, existing forest types, and the loss of timberland to competing land uses.
Indeed, the large number of factors determining the economic potential for profitably managing Georgia's forest resource are so complex that it was necessary to utilize the "Computer Model of the Long-Run Timber Market and Forest Management" developed for Georgia by
the Contract Research Division of the College of Business Administration at Georgia State University.
LONG-RUN PINE TIMBER SUPPLY CURVE AND THE STUMPAGE PRICE
LEVEL
CURVE S
Georgia's long-run supply curve for pine timber projected by the model takes the positive slope of the classic supply
curve. As shown in Figure 1, the annual volume of pine forest growth that can be supplied to the stumpage market in the
future at an acceptable profit to landowners is greater as the stumpage price
rises.
At a real price level equal to the 1977 average stumpage price of $335/MCF, it is economically feasible for landowners to supply 909.5 million cubic feet of pine annually on a sustained yield basis. This long-run pine supply potential compares with 687.4 million cubic feet of pine volume removed for all industrial uses in 1971, the year of the last Forest Survey. At 1977 management costs and stumpage prices, it is feasible to make current investments in cutover timber land that will ultimately yield 222.1 million cubic feet of additional pine volume over that removed in 1971.
What do these summary data mean in terms of the availability of wood to sup-

port expanded mill capacity? In 1971, the pulp and paper industry in Georgia consumed an estimated 479 million cubic feet of wood, equal to 70 percent of pine roundwood removals in the state. The supply of pine was augmented by 62.5 million cubic feet of hardwoods. Since 1971, however, the pulping capacity of
Georgia mills has increased from 13,880 tpd in 1971 to 16,457 tpd currently. Further, a new mill with a pulping capacity of 900 tpd is under construction. Since 1971, the pulping capacities of Georgia mills has increased a substantial 25 per-
cent. An analysis of current wood demands by Georgia mills and the feasible
long-run supply of pine, considering cur-
rent forest management costs, stumpage prices, and mill delivered prices, indicates
that the Georgia forest can support additional pulping capacity of only 2,000 tpd.
However, the positive slope of the long-run timber supply curve means that a rise in the real stumpage price will bring forth a larger supply. If the future stump-
age price rises to a level of $350/MCF it becomes economically feasible to manage
Georgia's pine forest for a 937.5 million cubic feet pine supply. This sustained
level of wood supply is capable of sup-
porting about 2,600 tpd in expanded mill capacity. At higher stumpage prices the supply curve becomes increasingly inelastic, meaning that the pine supply required to support larger pulp mill capacities would require sharply higher delivered
wood costs for all forest products indus-
tries in Georgia.

CURVE S 2

Supply curve S 2 is the result of a second run of the model for this study.

It differs from supply curve S-. only in

that it assumes pine plantation yields rise

by 10 percent, a wood productivity gain

that should be realizable through restock-

ing with superior seedlings and scheduled

timber management improvements. Re-

presenting an increase in supply, So lies

to the right of S,. Further, supply curve

S 2

indicates that

it

is economically justi-

fied to manage the pine forest to supply

greater volumes of sustained yield at all

prospective levels of stumpage prices.

At the current price level of $335MCF, an annual pine supply of 1.07 bil-

lion cubic feet is feasible under the So

assumption. This supply level exceeds

that which is feasible at current prices

under the lower plantation yield assump-

tion of supply curve Si by 164.7 million

cubic feet. The added volume of pine

supply available at the current price level

under supply curve So would support an

expansion of mill capacity by 5,300 tpd,

as well as proportionate increases in the

capacities of the state's sawmills and ply-
wood mills.

The data generated by the model

showing the sustained annual pine timber

supplies under S and S management

1

2

practices at varying stumpage price levels

are presented in Table 1. The timberland

management prescriptions that would

make feasible the S., and S2 long-run
curves are described in the unabridged

study.

Table 1
GEORGIA'S LONG-RUN PINE TIMBER SUPPLY
(Constant 1977 Dollars)

Stumpage
Price Level
$/MCF

Sustained Annual Yield

Supply 1
M Cu.Ft.

Supply 2
M Cu.Ft.

50.00 100.00 150.00 200.00 250.00 300.00 335.00
350.00 400.00 450.00 500.00 550.00

356.7 356.7 40636.8 253651.8 355896.1 744994.6 909453.9

356.7 356.7 41656.6 278641.8 419418.6 910432.6 1074191.0

Curre;nt Price Leve' I

937498.3 1017136.4 1078549.0 1112335.0 1135843.0

1086042.0 1148199.0 1201772.0 1290636.0 1341085.0

Source: Economic Model from Southeast Forest: An Economic Outlook, MiDntgomery, Robinson, and
Strange.

INDUSTRY AND STATE BENEFITS FROM INCREASED TIMBERLAND
PRODUCTIVITY
The economic benefits accruing from
the increased productivity of the Georgia
forest are substantial. The employment and income gains flowing from the primary industry expansion and the management of the forest resource would help ameliorate rural poverty in Georgia. At
present costs it is estimated that the direct expansion of pulp and paper mill capacity entailed by the feasibility of
forest management would add 1.9 million
tons annually, generate $1.6 billion in industry investment, and create 5,000 additional skilled high paying jobs. Importantly, a large fraction of this potential pulp and paper industry expansion potential can be realized in the near future, provided industry has the assurance that this realizable vision of the future

10

Stumpage
Price Cost
$/MCF
550 _ 500 _ 450 400
350 300
250 _
200 150
100

j Figure 1
Georgia's Future Pine Timber Supply Alternative Economic Outlooks
(1977 Constant Dollars)

Sustained Annual Yield (Million Cubic Feet)

1,000

1,250

1,500

11

Georgia forest is supported by landowners, state and federal policy makers, and the public.
FUTURE MARKETS FOR GEORGIA'S PULP, PAPER AND
PAPERBOARD PRODUCTS
Georgia's pulp, paper, and board industries serve both national and international markets. While the pulp mills located in the state are integrated extensively with paper and board mills, Georgia produces a significant share of the Nation's market pulp supply.
PULP IMPORTS
The United States imported 4.1 million short tons of pulp in 1979. While
these imports constituted 7.7 percent of the total pulp supply available for domestic use, imports represented 57.6 percent
of the new market pulp supply. Based on
the realization of a mill expansion potential of 1.9 million tons of woodpulp per year, Georgia produced pulp could substitute for 46 percent of current national imports if all potential increased production were marketed nationally. It should be noted that domestic converters and specialty mills are especially dependent on pulp imports and would constitute a primary market for expanded production by Georgia mills.
PULP EXPORTS
In 1979, the United States exported 2.7 million short tons of pulp. Were the entire 1.9 million tons of Georgia's pulp expansion capacity exported it would increase the Nation's current pulp exports by 70 percent. Even if, as today, relatively little of the expanded Georgia output were to be sold as market pulp, the greater production would help to narrow the Nation's trade deficit in woodpulp. In 1979, this excess of market pulp imports over exports amounted to 1.4 million short tons.
FUTURE MARKETS FOR THE PRODUCTS OF GEORGIA MILLS
The products of Georgia's pulp, paper, and board industries have significant mar-
ket penetrations in virtually every activity
associated with the industrial, commercial, governmental, and household sectors of the economy. Consequently, the change in constant dollar gross national product is conventionally used as a surrogate in projecting the demand for paper and paperboard products.

Between 1967 and 1973, the national consumption of paper and board products maintained a relationship at about 53,700 tons per billion dollars of real GNP. Since 1973, the United States has experienced a slowing of growth in constant dollar GNP. In turn, a downward shift has taken place in the relationship between paper and paperboard consumption and the level of real economic activity to about 50,100 tons per billion dollars of GNP. Nevertheless, the annual consumption of paper and paperboard products in the United States exceeds 600 pounds per capita, which is the highest standard in the world.
This apparent weakening in the level of national demand for paper and board products in relation to economic activity is, in part, related to the rapid rise in the market price for woodpulp. Since 1967 this price has more than tripled, with the price index standing at 322.5 in September 1979. The inflation in the price of
wood pulp is, in turn, symptomatic of
increasing cost pressures confronting the industry nationally and internationally.
These trends bode well for the expansion of the pulping capacities of Georgia mills. The rising price of woodpulp is an economic signal that capacity should be expanded in regions where pulp can be manufactured profitably at the market
price.
Georgia mills enjoy a pulp manufacturing cost advantage due to the scale econo-
mies of world class mills and the wood
cost advantages of the southern pine forest. These pulp cost advantages, in turn, bestow distinct economies on the production of paper and board products by Georgia mills. Coupling these locational assets and cost advantages with an expanded future timber supply, Georgia mills can enhance their dominant position in the manufacture of pulp, paper, and paperboard products, and thus greatly increase the dollar value of the industry to the state economy.
STRUCTURE AND CAPACITIES OF THE PULP, PAPER AND BOARD INDUSTRIES IN GEORGIA
Comprised of 168 plants, the pulp, paper, and allied products industry in Georgia is broadly diversified. Georgia ranks first among the nine states that claim an annual woodpulp production
capacity in excess of 2.5 million tons. Considering the annual capacity to produce paper and paperboard products,
Georgia again claims first position among
the 14 states with output in excess of 2.5 million tons yearly. Georgia holds top

position among southern states in shipments of converted products and ranks among the ten leading states nationally.
Georgia is thus positioned as the nation's largest and most extensively integrated producer in the pulp, paper, and allied products industry.
PULP MILLS

The pulping capacity of Georgia's 16 primary pulp mills stood at 16,457 tons per day in 1978, up from a total of 13,778 tons per day in 1970. This pulp-
ing capacity is largely concentrated in the sulfate or kraft process, as follows:
PULP PRODUCTION BY PROCESS IN GEORGIA, 1978

Process
Total Production Sulfate (Kraft)
Groundwood/
Mechanical Semi-Chemical

Production

Tons per

Day

Distribution

16,457 13,927

100.0% 84.6

1,750 780

10.6 4.8

Between 1970 and 1979 Georgia mills added 2,679 tons of daily pulping capacity. These capacity additions were concentrated 64.8 percent in the sulfate
(kraft) process.
An examination of the pulping pro-
cesses employed by Georgia mills indicates that 12 mills produce pulp using a single process and four mills manufacture pulp by more than one process. The following processes are used by the 16 primary pulp mills located in Georgia:

PULPING PROCESSES USED BY GEORGIA MILLS, 1970

Process

Number
of Mills

Single Process :

Sulfate

8

Groundwood/Mechanical 3

Semi-Chemical

1

Multiple-Processes:

Groundwood/Mechanical

-Sulfate

1

Sulfate -Semi-Chemical

2

Thermomechanical-

Recycled Newsprint

1

A well-defined geographical pattern
has emerged in the location of Georgia's pulp mills and the associated paper and board mills. As is generally characteristic of capital intensive firms producing a product (wood pulp) from relatively low value, high weight inputs (pulpwood),

12

pulp mills have located close to wood
sources. Additionally, pulp mills in Georgia are typically integrated with a primary paper and board mill. Because of the economies of scale inherent in mill integration, the geographical location of paper and board capacity is similar to that of pulping capacity. Converting plants that fabricate paper and board into industrial and consumer products tend to cluster in manufacturing centers and are more geographically dispersed.
The geographical location of Georgia's primary mills by daily tonnage is presented on Map 2. As illustrated, pulp
mills are clustered in the coastal counties and in the Coastal Plain Region of Geor-
gia. Chatham County leads the state with four mills which have a combined pulping capacity of well over 3,000 tons per day. As shown on the map, one additional pulp mill is currently under construction in Macon County.
Georgia pulp mills are typically very large, world class mills, as illustrated by the following distribution of the daily pulping capacities of individual mills:

Pulping Capacity (Tons per Day)
2,000 and over 1,000 to 1,999
500 to 999 Under 500

Number
of Mills
2 5 4 5

This pronounced tendency toward large mills is an outgrowth of the economies inherent in expanding mill capacity at existing sites and in product and process
integration.
In 1980, the manufacture of wood
pulp in Georgia celebrated a golden anni-
versary. The first of today's primary mills was located in Chatham County in 1930.
During the 1930's, an additional three mills located in Georgia's coastal counties. These four mills dating from the 1930's have a current output capacity of 4,695 tons per day. The 1940's witnessed
the addition of four new mills which now
have a combined capacity to produce 3,200 tons of pulp per day. The decade of the 1950's ushered in three more mills with a current capacity of 3,717 tons per day. The 1960's was a significant growth period in which four "green" mills were added that now produce 4,395 tons per
day.
During the late 1970's one additional mill was completed and another was under construction that will have a combined initial production capacity of 1,350 tons per day. It was typical in Georgia during the decade of the 1970's that significant capacity additions arose from investment in mill modernization and

the addition of onsite capacity at existing
mills. As an example, the Great Southern
Paper Company in Cedar Springs, Geor-
gia, completed a $25 million investment in mill upgrading in 1978 that increased the output of unbleached kraft linerboard and corrugating medium by 300 tons per
day.
PAPER AND BOARD MILLS

Georgia's paper and board industry consists of 28 firms, 15 of which are integrated pulp, paper, and board mills. The paper and board industry has an output capacity exceeding 16,000 tons per day. This capacity is concentrated in the integrated pulp, paper, and board mills, which represent more than 90 percent of
total capacity.
The geographical dispersion of Georgia's 21 leading paper and board mills by tons per day of capacity is presented on Map 3. Paper and board mills in Georgia
are typically large scale, capital intensive
operations, as illustrated by the following distribution of production capacities.

Paper and Board Capacity (Tons per Day)

Number of
Mills

2,000 and over

2

1,000 to 1,999

3

500 to 999

6

Under 500

10

All paper and board mills in Georgia that are not integrated with a pulp mill have a daily production capacity of under 500 tons. These mills have clustered
in metropolitan areas since World War II and typically serve a regional market. The scale of employment in unintegrated mills
is substantially less than is generally found in integrated pulp, paper, and board mills.
Using a combined industry classification, the county location of employment in Georgia's pulp, paper, and board mills
is depicted on Map 4. Because of the
widespread integration of paper and board mills with pulp mills, employment is concentrated in those counties with an
established wood pulping capacity.
Georgia's integrated mills currently produce daily an estimated 15,200 tons of pulp and 14,600 tons of paper and
board products. The nonintegrated pulp mills produce an estimated 1,250 tons of pulp daily, and the nonintegrated paper and board mills in Georgia produce 44 major classifications of products. Certain
of these products enter final markets, while others provide inputs to manufactured products by converted paper products plants and container and box
plants.

CONVERTING PLANTS
The paper and paperboard converting industries in Georgia represent a complex structure of 60 converted paper and paperboard products plants, 62 paperboard container and box plants, and 23 plants that manufacture both converted and other paper and allied industry products. Specifically, Georgia plants manufacturing converted paper and paperboard products produce 42 standard products and paperboard container and box plants produce 17 product classifications.
The distribution of employment in converted paper and paperboard plants
by county is presented on Map 5. A few
counties with very limited employment and usually a single plant arenot included to avoid disclosure. Employment in the converting industries is markedly concen-
trated in metropolitan areas. It is noteworthy that 22 firms in this industry classification are located in Atlanta and five are situated in Macon.
The distribution of paperboard container and box plants is more diffused
geographically than the scatter of converted paper and paperboard plants. This is illustrated in the location of the 18 Georgia counties with significant employ-
ment in the industry, as shown on Map 6.
Interestingly, nine of the counties with
significant employment in the container and box industry are dually listed as having significant employment in the converted paper and paperboard industry. Again, a pronounced urban location tendency is illustrated by the container and box industry, since proximity to indus-
trial customers is a meaningful location determinant.

13

Map 2
Georgia Pulp Mill Production Capacities (Tons Per Day)
MILL CAPACITY (TPD)
Less than 250
250 to 499
500 to 999
1 ,000 to 1 ,999
2,000 or more
A Mill under construction
2,270
14

Map 3
Georgia Paper and Board Mill Production Capacities
(Tons Per Day) MILL CAPACITY (TPD)
Less than 250
250 to 499
500 to 999
1 ,000 to 1 ,999
2,000 or more
3,100
15

Map 4
Georgia Employment In Pulp, Paper, And Board Mills
(By County) EMPLOYMENT
Less than 250
250 to 499
A 500 to 999
1,000 to 2,499
^2,500 or more
Number of establishments: 28
16

Map 5
Georgia Employment In Converted Paper And Paperboard Products
(By County)

\
\

EMPLOYMENT
Less than 250
250 to 499
500 to 999 1 ,000 to 2,499
2,500 or more

Number of establishments: 60
17

MAP 6
Georgia Employment In Paperboard Container And Box Plants
(By County)

Lincoln

EMPLOYMENT
Less than 250
250 to 499 A 500 to 999
1,000 to 2,499
2,500ormore

Number of establishments: 62
18

aiDfl OMMMT Eb3fl

GEORGIA
FORESTRY
A. Ray Shirley, Director John W. Mixon, Chief of Forest Research