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FEATURE-Paper cuts: U.S. coronavirus downturn hits timber-reliant towns

BAYFIELD, Wisconsin, Sept 23 (Thomson Reuters Foundation) - W hen a major U.S. paper producer decided over the summer to shut two of its plants, citing the drop in demand for paper amid the coronavirus pandemic, it sent reverberations through a region that is highly reliant on its timber industry.

The sudden move by Verso Corporation affected thousands of jobs in Minnesota and its neighbor Wisconsin, where it also cut off revenue that was keeping many of the state’s counties afloat.

“Twenty-five percent of the pulpwood Wisconsin produced went to that one mill alone,” said Henry Schienebeck, executive director of the Great Lakes Timber Professionals Association (GLTPA).

“We’ve seen some mill closures for the last 10 to 15 years, but we’ve never had one that took this much wood.”

Already stressed by rising digital trends, the U.S. paper industry has been rocked by the pandemic, which plunged the country into a recession affecting advertising and jobs, while school and office closures saw the need for paper plummet.

That “triple whammy” has slashed demand for paper by 35% from the same time last year, “a massive, catastrophic decline” affecting mills across the country, said Derek Mahlburg, a senior economist with Fastmarkets RISI, which tracks the industry.

Dedicated to producing glossy paper for print publications, the mill in Duluth, Minnesota, halted operations in June, followed in July by the one in Wisconsin Rapids, which for decades was said to be the world’s largest paper mill.

Verso’s decision was based on an “accelerated decline” in demand for certain types of paper as a result of the pandemic’s impact on print advertising, a company spokesman said in an emailed statement.

The company continues to look for potential buyers for the mills and holds out the possibility of reopening them if market conditions improve, he said.

RISE OF DIGITAL MEDIA

The Verso mill closures affected upwards of 14,000 jobs, not only those of the 1,000 mill workers, but also people who cut and transported timber to the operations, according to Schienebeck.

A representative for the United Steelworkers union, which includes paper mill workers, declined to comment.

Mike Nielsen, who runs an eight-person logging operation near Ely, Minnesota, said his production has slowed by about 40% since Verso’s announcement in June.

Independent loggers like him typically buy rights to timber two or three years in advance, meaning they are left with significant debts if a market suddenly dries up.

“Right now I possess a lot of timber - and a third of it doesn’t have a home,” said Nielsen, 40.

His loggers are now focusing on harvesting species other than the spruce and balsam that would typically have been headed for the paper mills.

“We’re harvesting as (much) as we can and trying to find a market, and otherwise we’re trying to avoid spruce and balsam like it’s COVID-19,” he said.

The U.S. paper industry has been battered over the past decade by the rise of digital media, said Mahlburg, the economist.

Demand for most types of graphic paper have plummeted by 60% during that time, he said.

Although the need for cardboard boxes has skyrocketed in more recent years due to the rise of online delivery, he said, converting mills from one type of production to another is extremely costly.

Together, the two Verso mills in Duluth and Wisconsin Rapids had the capacity to produce about 810,000 tons of paper per year, according to the company.

Verso said that it looked into pivoting operations at the mills to make other paper products, but was unable to find viable alternatives that could be done in the near term.

GUTTING COUNTY BUDGETS Wisconsin looks set to be particularly hard-hit by the financial effects of the paper sector’s downturn, industry experts say.

The state has the largest paper industry in the country, contributing nearly $30 billion and more than 95,000 jobs in 2018, according to a report published last year by the Wisconsin Economic Development Corporation.

“What’s important about the paper industry in Wisconsin is that you see the full supply chain in the state,” said Missy Hughes, chief executive of the public-private agency.

The current effects of the Verso mill idling are “scary”, Hughes said, but she remained optimistic on the sector: “There is absolutely a strong place for the forest products industry in Wisconsin and will continue to be.”

Yet, the situation means huge revenue losses for Wisconsin counties that have long based their budgets around timber sales - local jurisdictions that are already reeling from other pandemic-related financial concerns.

Wisconsin is unique nationally in that its counties are the largest public landholder in the state, managing more than 2.4 million acres (970,000 hectares), said Rebekah Luedtke, executive director of the Wisconsin County Forests Association (WCFA).

About 60% of the state’s 17 million forested acres (6.9 million hectares) are held by private landowners, according to Schienebeck.

Luedtke said taxes from timber sales are among the main revenue generators in the WCFA’s 30 member counties, helping to fund highway maintenance, healthcare services and more.

“So, when they lose a big player like Verso in the state, the ripple effect is enormous. Some of our counties sent more than 50% of their wood to Verso,” she added.

FOREST MANAGEMENT

The mill closures could also potentially roil management strategies built around logging as a way to ensure healthy forests.

“If we can’t sell the wood, that could directly affect the health of our forests in terms of insect infestation and disease,” said Luedtke. “That is definitely a concern.”

Logging is an important strategy for managing disease and invasive species in woodlands, according to the U.S. Forest Service, though conservation groups warn that intensive harvesting degrades soils and forest ecosystems for decades.

Schienebeck at the GLTPA likened selective harvesting to a well-managed diet for a cancer patient, helping stop the illness from spreading, so a major slowdown in timber harvesting could now allow insects and disease to get more of a foothold.

“If you’re a logger, the last thing you want to do is run out of trees,” he said.

"The only reason we have healthy forests is because we're managing them sustainably. But we have to have someplace for the wood to go." (Reporting by Carey L. Biron @clbtea, Editing by Jumana Farouky and Zoe Tabary. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit news.trust.org)

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