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Wisconsin Natural Resources magazine

Wisconsin Natural Resources magazine

cover.jpg - 15606 Bytes Understanding
the economic value
of Wisconsin's
forests

December 2005

Wisconsin's forest products firms

How they keep pace with the global marketplace

Natasha Kassulke and Katherine Esposito


Wisconsin's forest industry pays

Exhibit A: An oak dining room set, four chairs and a table, with dovetailed joints and an oiled finish, made by Richardson Brothers of Sheboygan Falls, Wisconsin. Price: $1,750.

Exhibit B: An identical set of chairs and table, similar construction, similar finish, made in China and imported to the United States. Price: $1,200. Which one would you buy?

Most U.S. homeowners, faced with a mortgage, two kids and $1,000 in bills every month, would choose the cheaper. When that scenario actually unfolded a few years ago for Richardson Brothers, the family had to make a tough decision.

The company, founded by great-great-great-great grandfather Joseph Richardson, was losing money on every chair it sold.

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"You can't lose seven figures every year and stay in business," says Jim Richardson, president of Richardson Brothers, a division of Richardson Industries. Nearly 200 jobs and the company's survival were at stake. The family decided to move all furniture manufacturing to China, and, initially, South America. Now they, too, sell dining room sets for $1,200 and their furniture sales have rebounded.

Unfortunately, Richardson Brothers is not an isolated case. Other forest industries in Wisconsin are feeling pressures brought on by forces beyond the U.S. borders.

China is not the only competitor. Canada, with its favorable exchange rate and lower fringe benefit costs, has about a 30 percent competitive advantage compared to similar firms in the United States.

What drives the forest products marketplace? The buyer does with individual purchasing decisions. © Robert Queen
What drives the forest products marketplace? The buyer does with individual purchasing decisions.

© Robert Queen

In the papermaking business, 5,000 jobs have been lost since 2000, as big foreign firms bought Wisconsin companies and closed less profitable mills. Forest products have always been closely linked to the global economy, even more so since passage of the North American Free Trade Act (NAFTA).

Lost jobs also mean less income tax that pays for public services like roads, police protection and libraries.

The United States, for 100 years a world manufacturing powerhouse, has paid a price for its success: Aging industrial machinery costs more to run and produces less per hour than newer, computer-operated equipment being installed in brand-new factories elsewhere. High salaries and good health insurance are unheard of in many developing countries. And, over the past two decades, stringent environmental laws have protected our water, air and soil. These factors add extra costs to any product on a store shelf.

China has less strict environmental laws and worker safety laws are weaker. But more critically, Chinese products of any kind cost less to make and sell largely due to the country's abundance of workers – 150 million rural Chinese have no jobs – and the jobs that are available pay far less than in the U.S. A worker in Shanghai, where much furniture is built, is paid about $2 per hour, which is considered a working wage.

Wisconsin, with its abundance of timber and historically strong manufacturing base, epitomizes the pattern of change in U.S. forest industries. Firms like Richardson Brothers and Kretz Lumber Company of Antigo were owned by local families, employed workers from nearby towns and got their trees from area forests.

How can Wisconsin companies keep up? The strategies differ by industry. Furniture maker Richardson Brothers figured that Chinese workers could make a chair according to their specifications at half their current cost.

In Antigo, wholesaler Kretz Lumber has maintained a focus on wood quality and timely delivery. Long ago, Kretz learned that some clients were willing to remodel their kitchens with cabinets made of beautiful, clear hardwood. Well-appointed kitchens are a big part of home values. So, Kretz foresters search northern Wisconsin and Michigan's Upper Peninsula for well-managed forests of hard maple to meet those desires, then mill the lumber and glue it up to form rough cabinet panels. The panels are then shipped to cabinetmaking firms.

Kretz cuts other grades of maple, basswood and birch for wood flooring and boards, as well as many other products. None of the tree is wasted: lower quality pieces go for pallets and mulch, residue is made into "liquid smoke" for cooking and wood scrap is burned to heat buildings.

Their strategies have worked. The firm's Wisconsin workforce has grown from 30 to 165 since 1987.

"Our quality is something we really hang our hat on," says Tim Kassis, Kretz sales and marketing manager.

Wisconsin's forest products industry is the backbone of 1,800 companies. © Robert Queen
Wisconsin's forest products industry is the backbone of 1,800 companies.

© Robert Queen

The company also keeps its finger on the pulse of the world lumber market. On a recent trade mission to China, Kassis attended a wood products trade show and instructed Chinese lumber buyers on how to judge wood quality. At some point, the Chinese public may prefer Midwestern clear hard maple, too, he thinks.

When it comes to immediate market influence, however, some players wield enormous clout. One is Time Warner, Inc., publisher of mega-magazines Time, People, and Sports Illustrated, and purchaser of 650,000 tons of paper every year from 53 paper mills around the world, 26 in the United States.

But three years ago, Time Warner's publishing arm told its paper suppliers that it would no longer accept paper that was not acquired from "ertified"woods. "Certification" is a seal of approval indicating that trees have been grown and logged according to modern, ecologically advanced principles. That decision reverberated through the industry, as periodical printers passed the request on to pulp suppliers. Those, in turn, started to look for wood from certified forests.

Initially, Wisconsin's publicly-owned forests did not carry that seal of approval, though public and much private land was managed according to the same principles as certification demands.

Last summer, however, private forest lands in the Managed Forest Law program – 1.9 million acres – received the certification label, acknowledging the good practices on which DNR had insisted. These certified private lands joined the certified state and county forest acreage, bringing the total certified forests in DNR-administered programs to about five million acres. The hope is that with Time Warner as a guaranteed customer the wood from these lands will receive good management and provide an economic boost to Wisconsin as well.

Back in Sheboygan Falls, the Richardson family knows they won't be returning those furniture-making jobs from China any time soon, but the bell has not yet tolled for products made from American labor. Three years ago, the firm developed a specialty line of yacht furniture and started shipping it to boat makers in Florida. There, they compete mostly with Italian manufacturers, and the playing field is more even. Chinese companies, with mass markets in mind, have thus far shied from product lines with narrow appeal.

About 60 people have been hired to fill those jobs, Jim Richardson says, almost a third of those are former Richardson employees.

Making the choice to outsource American jobs was tough, especially in a city like Sheboygan Falls where everyone knows everyone else, Jim Richardson acknowledges. "It's a small town, and I still have to go down to the gas station and run into the people working at the mini-mart who used to work in the assembly department," he says.

But being a business owner in a tight global economy requires a broad vision and flexible approach. All forest products companies should take that to heart, he thinks. Change is the norm in the business world but what's unique about the forest products business is the degree of long-term planning that goes into every decision. Every tree that germinates today will take half a human lifetime or longer before it's ready for harvest.

Now that Richardson's company has success in China, furniture manufacturing is moving once more, this time to Vietnam. To keep competitive, Richardson Brothers will adapt and change. Again.

"It's not like we made the decision to go to China, and will sit on it and everything's going to be fine," Richardson says. "The pressure is continuous."

Natasha Kassulke is associate editor of Wisconsin Natural Resources magazine. Katherine Esposito writes about environmental issues for WNR.

Wisconsin's forest industry pays
Wisconsin's forest products industry:
  • is a $28 billion industry and represents eight percent of the state's total industrial output (including printing and publishing).

  • provides 96,000 manufacturing jobs.

  • is the nation's second largest investor in forest industry capital equipment, $811 million annually, 20 percent of all investment in Wisconsin manufacturing.

  • provides high paying, high skilled jobs, paying an average $38,000 annual salary, compared to the state average of $30,000. The average paper mill worker earns $49,000 annually.

  • is the backbone of 1,800 companies. Wisconsin is the number one papermaking state in the nation and has been for 50 years.

  • produces more than 5.3 million tons of paper and over 1.1 million tons of paperboard annually.

  • sees that about 91.5 percent of the state's timber harvested stays in Wisconsin to be used by Wisconsin manufacturers.

  • employs one in every eight workers in manufacturing jobs. Fore every 10 jobs in the forest products industry, an additional 16 jobs are produced in other sector's of the state's economy.