Mr. Chairman, members of the committee:

My name is Jack Phelps and I am Executive Director of the Alaska Forest Association. I am a member of the Society of American Foresters, and I have worked in the forest products industry off and on since 1969. The Association represents the timber industry throughout Alaska. To that end, we support efforts that enhance economic opportunities by making the forest resources of Alaska available for sustained harvest. We believe that timber harvests are an appropriate management tool for public land managers to maintain forest health and provide public benefits from publicly held land.

Today I will be discussing with you the market situation with respect to Alaska timber generally, and beetle killed and beetle damaged timber in particular. I also want to talk about the constraints that complicate the problem of marketing beetle killed timber from public lands in Alaska, and offer some thoughts on what you might be able to do about them.

As you have heard from the various experts who have testified today, and as you can learn from reading some of the printed material that has been distributed to you, the spruce beetle problem in Alaska is widespread and crosses all ownership boundaries. As you might expect, the private landowners have been the most responsive to this forest health situation. Regional and village Native corporations own large tracts of beetle-infested land. Those firms have been logging and reforesting their beetle-infested land for the last six to eight years. They have been able to sell into several niche markets for both round logs and chips.

Alaska white spruce has some qualities that make it a very desirable commodity in some markets. For example, the principle purchaser of white spruce on the Kenai peninsula today is Anchorage based Circle DE Pacific which has a chip handling facility on Homer Spit. The company sells wood chips to two Japanese paper companies for use in newsprint and high quality bond paper. Since 1993, the company has progressively increased its shipments from 100,000 Bone Dry Units (BDUs) in that year, to 135,000 BDUs this year. It expects to increase shipments yet again in 1997, to 150,000 BDUs. The port facility is capable of handling twice that volume.

Circle DE Pacific’s customers find the Alaska chips particularly desirable because of their white color. There are economic and environmental advantages to using chips that do not have to be bleached. Alaska has an advantage in this market, in that the year round, ice free port of Homer is 2.5 days closer to Japan than the U.S. west coast is. A potential competitor for this market is Russia, and it behooves Alaska to develop the market as much as possible, so that we can maintain a competitive edge. One factor important to that purpose is timely timber sales. To be best suited, the spruce must be harvested soon after its demise if it is from a beetle infested stand.

The Alaska Forest Association has recently released a study of the Pacific Rim market for Alaska timber which I have provide for you today along with my written comments. It shows that the countries of the Pacific Rim are expected to increase imports of timber and lumber over the next several decades. It shows that the traditional sources of supply for this market, particularly the Pacific Northwest, are not in a good position to respond to the growing market. It also shows that the often predicted increase in supply from the American Southeast is unlikely to develop, leaving a significant opportunity for another American region, such as Alaska, to step to the plate. Our geographic position is a decided advantage. Direct competition from countries like New Zealand and Chile is likely to be minimal, since the type of timber available from them differs considerably from that grown here. Scandinavia and Russia, however, are direct competitors. Given our geographic advantage over the former we should be able to compete effectively, if other constraints do not hamper our efforts.

All is not rosy, however, on the market side. As you are probably aware, currently the market is in a serious slump. Pulp prices, especially, have been extremely low in recent months. Those companies, such as Circle DE Pacific, who have long term agreements with purchasers can weather such a slump. It is tougher on others. Nor is the price of chips the only problem. Low quality sawlogs have experienced as much as a 2/3 drop in market value since last. But the market is cyclical, and to whatever degree we can avoid it, we ought not to allow short term problems to dissuade us from working to develop long term markets for Alaska’s timber.

Artificial constraints (that is, non-market constraints) placed on developing timber resources on public lands in Alaska remain a concern to the industry. Most people believe that higher logging costs in Alaska are at least partly to blame for our inability to take full advantage of the market opportunities. Part of the problem is that beetle-caused deterioration in the wood reduces its value, but it is also true that environmental protections are greater in Alaska and those protections cost money. Right now the entire cost of the protections is absorbed by the owner of the tree.

Due to changes in state law made in 1990, state timber sales are subject to incredibly burdensome and expensive public process. The state estimates that it has one public meeting and produces about 50 pages of new documentation for every million board feet of timber it offers. Now bear in mind that this isn’t Tongass National Forest old growth, so what we have done is add huge extra costs to what is often extremely marginal timber. The Nineteenth Legislature took some steps in the last two years with HB 121 and HB 212 to provide some relief to this problem, and we especially appreciate the work your respective committees did on those bills, but the problem still remains.

Let me point out something about scale here. Legislators deliberated about whether the Forest Land Use Plan exemption in HB212 should be 10 acres or 20 acres. There’s little doubt in my mind that an exemption of 20 acre timber sales or an exemption for salvage sales would have brought a veto. But at the same time, some people who want more treatment of the spruce bark beetle epidemic talk about logging hundreds of thousands or even millions of acres. I think public support for an increase of that magnitude is going to be difficult to generate. But even if you could get the public support there certainly will be strong resistance from the Alaska Department of Fish and Game. Then again, you will have to look at some fundamental changes in the law because it is the law that gives direction to managers of public land. The law also gives public land managers a place to hide from decisions, which is what they often seem to want.

On the Federal side, we have an even bigger problem. The Chugach National Forest suffers from the same inertia that has paralyzed timber sale programs in national forests all across the country. Congress provided an opportunity to change that recently when it passed the salvage timber law late last year. Instead of responding and addressing a widespread forest health problem, the Clinton Administration chose to find a legal way to avoid obeying the law. The result here in Alaska was that the Forest Service got a lot of people excited about sales that never happened, and which I personally doubt were ever intended to happen.

The problem on Federal lands is complicated by the fact that much of the spruce beetle infestation on federal land occurs on lands which are not managed for timber resources at all (park lands, wildlife refuges, and other BLM lands). One action I think Alaska should take is for the Legislature to work with Governor Knowles to press the federal government to take action on its lands that will aid in restoration of forest health while creating some economic opportunities for Alaskans. It is time for Alaskans to speak up with a loud and consolidated voice. My association stands ready assist you, even as we are working with the governor to get a better recognition by the national administration of the needs of Alaska’s forests and her people. Recent actions by the White House have been less than encouraging, but we are not yet ready to give up.

I am available to answer any questions you might have.