TRANSCRIPT

Speaker 1 (00:04):

Welcome to the Arkansas Inc. Podcast, where we discuss the latest topics and trends in economic development with subject matter experts and influencers from across the nation and around the world.

Jack Thomas (00:18):

Welcome to the Arkansas Inc. Podcast. My name is Jack Thomas and I serve as a project manager on the business development team at the Arkansas Economic Development Commission. On this episode of the podcast, we're going to talk about one of the largest sectors in the Arkansas economy, the timber and forest products industry. When you think about Arkansas' economy and the sectors that comprise it, you have to think about agriculture, as agriculture is Arkansas' number one industry. And when it comes to the agricultural sector, I've heard it said that it's easy to forget that the timber industry is part of that. But when you spend time on a tree farm, you quickly realize that timber is a crop just like rice, cotton, or soybeans. In Arkansas, there are about 19 million acres of forest land, covering more than half the state. And for every tree harvested, 1.7 trees are planted back in the ground.

Jack Thomas (01:05):

And Arkansas ranks number one in the South for economic impact of the timber industry. And today we're pleased to be joined by one of the most knowledgeable people in the timber and forest products industry, Dr. Matthew Pelkki. Dr. Pelkki is a professor in the George H Clippard Endowed Chair of Forestry at the School of Forestry, Agriculture, and Natural Resources at the University of Arkansas Monticello. Dr. Pelkki joined the faculty in 2001 and teaches courses in economics, wood products, and forest management. He has published more than 100 scientific articles and been a part of research projects totaling more than $5 million. His current research demonstrates the link between healthy forest and healthy forest based economy. Dr. Pelkki, thank you for joining us today.

Dr. Pelkki (01:49):

Oh, you're very welcome, Jack. I'm glad to be here.

Jack Thomas (01:51):

Good deal. Well, before we dive in, can you give listeners a brief timeline of your career and maybe where you are today?

Dr. Pelkki (01:57):

All right. So I grew up in a GM Town, a General Motors town in Saginaw, Michigan, decided that I wanted to get into forestry because of my, just I love trees and went to the University of Michigan for my undergraduate degree, and then University of Minnesota for my PhD in 1992. I spent 10 years at the University of Kentucky at the department of forestry there and came to UAM 20 years ago as the Clipper Endowed Chair. And I've been working on forest economics and forest management problems for those 20 years. And I've been really impressed by the forestry community and the resources of the state and the opportunities that we have here.

Jack Thomas (02:39):

Dr.Pelkki, you penned a column recently highlighting how 2020 was a busy year in Arkansas' timber industry and you were spot on with that analysis, and now we're seeing that 2021 is off to a hot start as well. We're fortunate to have seen steady and continued development in the forest product sector with several world-class companies choosing to locate in Arkansas. We started the year with an exciting announcement and hope as Danson's, which houses a family of brands, including Pit Boss, Louisiana Grills, and Country Smokers, announced plans to open the country's largest barbecue pellet mill in Hempstead County. Of course, we're very excited about this project as Danson's will create 50 to 100 new jobs at their hope location. In March, we joined executives from Fiber Pro, a manufacturer of equipment for saw mills and forest products companies to celebrate the creation of 70 new high paying jobs in Hot Springs.

Jack Thomas (03:31):

And most recently, Drax Biomass, an international biomass production and supply company, announced the construction of three new satellite plants in Arkansas. Drax is investing $40 million and creating 30 new jobs across three communities in the state. And lastly, Structurlam, a manufacturer of cross-laminated timber, is set to begin operating this summer, hiring 130 people at their Conway facility. Their story is a perfect description of both the diversity, as well as the interconnected nature of the Arkansas economy. You start with trees grown in South Arkansas, and those trees are then trucked up to central Arkansas for manufacturing in Conway. And then those materials are used for the foundation of Fortune number one, the corporate headquarters of Walmart up in Bentonville, in the Northwest corner of the state.

Jack Thomas (04:19):

So you get South Arkansas, central Arkansas and North Arkansas all tied together in one project. And when you think historically about the forest products industry, you think paper, you think dimension board, you think railroad ties and things of that nature, but we're starting to see some new products fall under this umbrella. You've got pellets for fuel. You've got barbecue pellets, cross-laminated timber. Dr. Pelkki, can you talk about what we've seen over the past few years as it pertains to product innovation?

Dr. Pelkki (04:46):

Certainly, there's a broad range. With concerns about sustainability and potential global climate change, we are seeing a real increase in wood manufacturing for building construction. We're also seeing it in the paper and packaging sector, looking at new markets for paper and packaging. A lot of the innovation is coming from European firms, but is being readily adopted by Arkansas industry. We're also seeing some interesting things on small scale with a nano-cellulose technology for medical purposes and some very creative packaging options, including things like stretchable paper. So we're starting to see an opportunity to replace steel and concrete to a certain extent, and some plastics where it's appropriate, with renewable and biodegradable material.

Jack Thomas (05:37):

Yeah, that's interesting. You talk about some of the research and development on the small scale, as well as some of the large scale. And you look at what companies are choosing to do here in Arkansas. We mentioned pellets for fuel, we mentioned barbecue pellets, things of that nature, that five, 10 years ago, unless you're entrenched in the industry, a lot of folks didn't really see coming. So when you look out, say over the next five, 10 years, what do you see as some of those new products that will be coming online?

Dr. Pelkki (06:03):

Over the next five to 10 years, I see mass wood products, mass timbers, and cross laminated timbers becoming a major segment of building in the United States and a real revolution in construction technology, both in the state of Arkansas and within the region. And we are really well positioned because of our location geographically for these markets. I also see increasing use of bioenergy. There are some really interesting technologies on liquid conversion fuels. We've been working on that for about 15 years and we've got some major energy companies that are throwing in a lot of research effort into building that. So we're going to see new markets for wood residues and mill residues going into the energy production as well.

Jack Thomas (06:53):

The University of Arkansas recently opened a Doughy Hall, which I believe, is the largest mass timber building in the United States. Dr. Pelkki, in your opinion, does this signal a new trend in the construction industry?

Dr. Pelkki (07:07):

Absolutely. So we've got a school of architecture at the University of Arkansas Fayetteville, the Fay Jones School of Architecture and Design. And Dr. Peter MacKeith is very much interested in advancing wood building design and designing with wood for a variety of structures. And so he has worked with architects in the state and with building contractors so we are seeing some experience in terms of our construction workforce, our engineering workforce, and our architects in the opportunities posed by this new material. And we are seeing, not only the Doughy Residence Hall, the new library storage building, the school of architecture is building a wood design facility. You had mentioned earlier, Walmart's corporate campus that is going to be cross laminated timber provided by Structurlam. We also are seeing a second cross laminated timber facility, Texas CLT out of Magnolia. And they've just been rated approved for construction of building grade panels.

Dr. Pelkki (08:13):

So we're starting to see a lot of pickup. And I know that actually Texas CLT has even shipped as far as South Carolina, some of their products as well. So we're seeing that we've got a very competitive industry and we're seeing changes. And we know that people like living in these mass timber buildings, there's actually studies about human health, living in buildings with a lot of exposed wood and they are safe, they are a renewable base, they tend to be carbon neutral because we're storing so much carbon in the mass timber. They are very resistant to fire, actually more so than a steel building. And they are equally resistant to things like tornadoes and other types of storms as concrete and steel. This is a very unique material, and we're seeing a lot of excitement in the architectural engineering and construction industry with this mass timber building.

Jack Thomas (09:09):

So speaking of innovation, I know there's some exciting things going on at UAM. Can you tell us about the Forest Business Center and the value that this can provide to forest product manufacturers?

Dr. Pelkki (09:20):

So this spring, the Arkansas state legislature funded the UAM center for forest business. And this center is going to be staffed with four or five PhD level technical experts in forest products marketing, policy and global trade, growth and yield modeling, and also timber supply modeling. So what we're going to be able to do is work with the Arkansas Economic Development Commission, and also work with private industry in terms of answering questions related to timber supply, helping them find new markets, analyzing and addressing any policy issues that are barriers to development or sustainable production. And then I guess one of the more important things for me as a forester is making sure that the longterm supply and impacts on our forest is going to be one that's a sustainable nature.

Jack Thomas (10:11):

Absolutely. It's going to be a tremendous resource for us, as well as the companies that we work with. As we work with companies, one of the first questions that we're asked is about the timber supply and the ability to source raw materials. Some of those questions include, what type of fiber is in Arkansas? How close can it be sourced? What's the wood basket like? How's the timber price? All of those questions are among the initial review of companies evaluating location for projects. So shifting the discussion slightly, let's talk about timber supply. From a raw material standpoint, what can forest products companies expect to find in the South and specifically Arkansas when it comes to supply?

Dr. Pelkki (10:51):

So Arkansas is a little unique across the South in that we probably have more mature pine saw timber than the other Southern states. But in terms of supply, we're looking at about a 10 million ton per year surplus of Southern Yellow Pine, largely Loblolly Pine, although we also have one of the largest resources of Short Leaf Pine left in the Southeast United States. And only 50% of our pine across the state is plantation pine. So one of the things that differentiates us is that we're actually growing a higher quality resource than a lot of the Southern states. There's a general surplus across the South, but we've got some areas that are well-suited for large timber baskets, four to 5 million tons within 50 to 75 mile radius are available. And so we've got a lot of opportunity for initial expansion. 60% of the state is hardwood forest. So we actually have a good high quality hardwood forest as well in the Northern part of the state. The other 40% of the forest acreage is Southern Yellow Pine, but that produces 75% of our entire wood production.

Jack Thomas (12:09):

Yeah. And I'm glad you mentioned that, especially as it pertains to the pond volumes across the Southern half of the state. I know you and I have talked before about the millions of board feet that are standing right now in our forest across the state. Can you talk briefly about what that means for forest products companies and what they can expect to find both here in the near term, as well as over the next, say, five, 10, 15 years as it pertains to standing timber?

Dr. Pelkki (12:34):

So right now, we're looking at approximately 480 million tons of standing pine growing stock. We're growing it at about 40 million tons per year and harvesting it at about 20 million tons per year. So we've got a considerable excess of pine saw timber and pine pulpwood across the board. And we've been increasing that over the last 40 years. So we've got huge amounts of pine volume. We've got net access. Our growth to drain ratios are well above one on our pine, so in other words, we are net growing more than what we are experiencing losses through harvest and mortality. And what that's doing is that's keeping our timber prices at some historic lows. We haven't seen timber prices this low for about 35, 40 years. And the advantage to that for industry is that that's not likely to change.

Dr. Pelkki (13:32):

As new industry comes in and we thin our existing forest, that's going to increase its growth. And then as we're harvesting saw timber stands, remember that we're planting 30 year old biotechnology growing at somewhere around four to maybe six tons per acre per year. We're going to be replacing that with timber that's going to grow between eight and 11 tons per acre per year. So in the long-term, even out 25, 30 years, we really need to increase our harvest almost double what we're harvesting in the state, just to keep up with it growth.

Jack Thomas (14:08):

Yeah, absolutely. And one thing you mentioned, and I'm glad you did, is the quality of the timber. And it's important to mention that that forest product companies should have confidence knowing that that timber supply is not just in surplus, it's not just abundant, but professionally managed. And one of the key elements, as you mentioned in this equation, is the quality of our surplus. And I know we're in the weeds a little bit here, but real quickly, let's take a deep dive into the quality of fiber that companies can expect to find here in Arkansas.

Dr. Pelkki (14:35):

All right. Well, as I mentioned, we certainly have a lot of plantation pine. And I mentioned that about 25% of the state is in strictly pine forests. And about half of that is in plantation pine. And so the speed of the growth on the plantation pine and the rotation lengths are typically about 30 years. And this makes it well suited for engineered timber, where firms can use advanced technologies to deal with some of the structural issues of timber that's so quickly grown. But the other real advantage, I think that Arkansas has over the rest of the South is, is that we've got a lot of natural pine. And that natural pine is often 40 to 60 years of age. We've got tremendously close growth rings on some of that timber so it's producing really, really high quality timber. And the lumber coming from it is also very high quality, a lot of knot-free, very tight grain timber, that's going to rank in some of the highest grades of lumber production.

Jack Thomas (15:38):

Absolutely. And when you think about the timber industry in Arkansas, it's easy to think of the pine tree farms or the hardwood forest, but really the backbone of the industry is the people. And in Arkansas, we have roughly 29,000 people employed in the industry. And each day across the state, nearly 10 different institutions provide up-to-date training, equipping the next generation of forest production workers. Of course, the University of Arkansas at Monticello, where you're on faculty, is the state's leader in timber education. So to shift the discussion slightly, what type of workers can forest products companies find in Arkansas? And what types of training are these workers receiving?

Dr. Pelkki (16:14):

Well, that's a great question Jack. So one of the advantages Arkansas has, is a long history and culture of timber production. So we've got longstanding family associations where three or four generations of both foresters, loggers, and woodworking technical specialists, both in the paper industry, in the flooring industry, in the sawmill industry. And so there's a great body of those 29,000 workers, but extending beyond that to their families and relatives. So there is a good dry, and a lot of our Kansans are looking for good work in rural areas, and they know that the forest industry provides those good jobs for them. So they're interested in being able to stay in the rural areas of the state, they're familiar with the wood products industry, and they've receiving a lot of different types of training.

Dr. Pelkki (17:09):

So at UAM, we do some technical training in instrumentation and electricity. Provisions for sawmills for mill rights. We also do some CDL training for trucking, which is very important. And we've had the resources in the past and are ready to start doing some logger education and training and even some heavy equipment operations as well in the logging industry to help maintain that crucial supply link from a landowner to the mill.

Jack Thomas (17:40):

Absolutely. And you guys are the shining star in the state, especially as it pertains to timber education and, I think, industry across Arkansas as well as industry evaluating the state is appreciative of that and recognizes the value of that. And certainly, we do as well as we market the state to forest products companies. So last question of the day that I have for you, Dr. Pelkki is a good one here, you ready?

Dr. Pelkki (18:06):

Okay.

Jack Thomas (18:07):

All right.

Dr. Pelkki (18:07):

I'm ready.

Jack Thomas (18:08):

If I'm a forest products company sitting here across the table from you, and I'm evaluating multiple states to locate our next manufacturing facility, say either a saw mill or a pellet plant or something a little more niche than that, and I ask you why should place this facility in Arkansas, what's your message?

Dr. Pelkki (18:27):

So the first thing that comes to mind is the overall environment that a forest products industry is going to come into in this state. And it's one where, in general, the population has a close association with the industry. They understand the renewable nature of forestry, and they work well together. And across the industry, government agencies, even environmental agencies, we tend to see issues sometimes a little differently, but we work cooperatively. So there's a great atmosphere in Arkansas around the wood industry. As well as, I would say, our proximity to the central United States markets in Texas, Oklahoma, even as far away as Colorado, North to Kansas City, St. Louis, and Memphis. We've got a lot of timber where we're very closely, got great transportation routes to these states, and we are just about the largest Southwestern timber base.

Dr. Pelkki (19:26):

You've got to go over the Rocky mountains, and even when you go there, you've got large transportation costs, and you don't have the kind of fiber resource that Arkansas has. So we're well-positioned in the central United States. As I mentioned, we've got a really good quality workforce, and our resource base is going to permit sustainability. I really don't see raw material prices rising anytime in the next 20 to 25 years. We're going to have a difficult time cutting our way out of this surplus. And we need to, as I mentioned, I do a lot of work in maintaining forest health and that link between healthy forests and healthy forest economies, and our most efficient way to avoid insects, disease, and fire is by maintaining a vigorously growing forest. And the most economical way to do that is to bring in the forest industry and provide income to landowners and sustainable wood products to society. So I think Arkansas is uniquely and very well positioned to see growth in the Timberland man.

Jack Thomas (20:30):

Yeah, that's awesome. And I agree with you, I think after spending some time with you and hearing that pitch, as well as some other discussions we've had, I think it might be time to start sending you into meetings and leaving some of the rest of us at home. So, Dr. Pelkki, I think this has been a great discussion. I want to thank for joining us today and thank you for your service to Arkansas and our forest products industry.

Dr. Pelkki (20:52):

You're very welcome, Jack. It's been a pleasure to talk with you again, as always, and I look forward to doing any other kinds of assistance I can on upcoming projects.

Jack Thomas (21:00):

Awesome. Thank you, Dr. Pelkki. To everyone tuning in, thanks for listening to the Arkansas Inc. Podcast. This is Jack Thomas, Project Manager with the Arkansas Economic Development Commission. To keep up with the latest news in the Arkansas timber industry, subscribe to the Timber Trends newsletter available on our website, arkansasedc.com. For more information about our organization and the latest economic development news in Arkansas, visit arkansasedc.com or connect with us on Twitter, LinkedIn and Facebook. Thanks for listening.