out of our funds. The Forest Service will reimburse us $27,000 in stumpage, so it's costing us $4,000 to put the road in, over and above the value of Forest Service reimbursement. Senator NELSON. You did not take advantage of the $20,000? Mr. GIERKE. We did not have that option. Senator NELSON. Would you have? Mr. GIERKE. Certainly. We just purchased another sale, which we did use the $20,000 option, but it's my contention Senator NELSON. To have the Forest Service build the road? Mr. GIERKE. Right. And, I would exercise my option on all sales, if I had the opportunity, because it's just a lot of extra work involved with a small operation where you have to supervise the road construction. There is no money involved in the appraisal, the construction appraisal for construction supervision. The Davis-Bacon rate comes into consideration, where the logger is allowed somewhat less than the normal standard contracting rates. His wage scales and everything are assumed to be 10 percent less than Davis-Bacon contract rates. Well, if you review the timber sales prospectus, or contract, they will say if you're a small business and don't have the capabilities of constructing the road. Then we suggest that you contract the work road contractors. Who is going to build the road for 10 percent less than going contracting wage rate. So, we're caught between a rock and a hard place. Either we build it, or if you don't buy a timber sale. you go out of business. Otherwise, you buy it and do it yourself, and lose more money than is absolutely necessary. It amounts to economics. Senator NELSON. You think it would be feasible to have them contract by forest, so all of these would be built by professional roadbuilders? Mr. GIERKE. No doubt about it. The Forest Service would have the roads done uniformly. You wouldn't have loggers building roads who aren't capable, or have the expertise. Where it would take a road contractor a number of days, this poor logger is trying to figure out exactly what operations to do first, in an orderly manner, because it's new, and I'm sure he will complete the work, but it's a struggle on his part. Representative OBEY. Just one question. Did you say you had no objection to the specified road levels? Mr. GIERKE. Well Representative OBEY. Did I misunderstand you? Mr. GIERKE. No; I don't have any obiection. I am a firm believer in good roads, but also. I am a firm believer in economics. We can't afford, as individual timber purchasers. to put the kind of money in the road. I can see where a good quality, high standard road that is going to be maintained is beneficial. Representative OBEY. Someone suggested that the roads being built may be based on specifications that are too high. Mr. GIERKE. Let me organize my throughts here. My understanding of the idea behind specified roads would be that the Forest Service would require only roads that a prudent operator would put in. So. if you had a block of timber sold, and a prudent operator would go in just to harvest, he would build a road just to get the timber. They said, well, in order to have a viable timber program, we want to have access to a larger area, so therefore, we are going to build a higher standards road. So therefore, they are higher than I would build, if I were to log the timber, but they are not, I wouldn't think excessive for proper timber management. Why should I, as an individual logger, buying a hundred thousand feet of pine stumpage, have to put in $30,000 worth of road? I wouldn't do that as a prudent operator, and I think the logger is subsidizing the other uses. He is the one building the road on a one shot deal, into a certain timber sale. The recreationist, hunter, and bird watcher, are getting by scot-free. The logger is a taxpayer. He is a businessman. He is paying, and carrying the burden for all the other users. Senator NELSON. Thank you, gentlemen, for your very thoughtful comments here on this issue. We appreciate it. Mr. AUSTIN. I had nothing to add, but by no means, any of the items presented, which are the four items involved, the fifth item, being the small business set-aside, which is extremely important to us. which is less than 500 employees. Senator NELSON. Mr. Weinmann, you testified before, and upon the conclusion of this, is there anything you would like to comment on? Mr. WEINMANN. Mr. Chairman, there was one point raised about national standard, and I think the record probably needs to be changed in that regard, in that we do not have national standards for road construction. This is determined for each individual road, pretty much on each individual forest, by our professional engineers, after pretty thorough analysis of land management needs. So, a specific road is designed upon its topography, the type of conditions that road will serve and then the standards are based upon that need, but there are no national standards that relate between the West and the East with regard to individual roads. It's pretty much on a case-by-case basis. for each national forest. Senator NELSON. Did you have any other comments you wish to make? Mr. BIERLICH. I have been misinformed, Mr. Chairman, because the first spec road I looked at, was a horror. I cannot believe they would build a road. I would think there were national standards. I had to work against those obstacles. I actually dumped 10,000 yards of gravel in a 5-foot culvert. And, if it was against my expertise for logging operations, it was according to standards. I was informed 4 years ago there were national standards. Senator NELSON. Well, you may very well have been correctly informed. Mr. Nedelman informs we there was a change in the law in 1976. There have been some modifications in the law. Thank you very much. That will conclude the hearing. [Whereupon the hearing was concluded.] TELEPHONE TELETYPE JAMES C. CUSTER President APPENDIX FLAMBEAU PAPER COMPANY A DIVISION OF CAPITAL CITIES MEDIA, INC. PARK FALLS, WISCONSIN 54552 STATEMENT FOR PUBLIC HEARING AT PHILLIPS, WISCONSIN, JULY 5, 1978 My name is James Custer. I am employed as President of Flambeau Paper wood annually from local suppliers. The purpose of the meeting this morning law. My purpose for appearing here this morning is to ask Senator Nelson and Representative Obey to help defeat the proposals to establish wilderness areas in Northern Wisconsin. These wilderness areas not only remove the source of timber for the small logger to cut, but they potentially eliminate the forest industries to which the logger sells his product through the enactment of stringent air pollution laws in the areas adjacent to the wilderness sites. The wilderness concept, if carried to extremes, will mean that the economy of Northern Wisconsin will become a no-growth situation and the people who have made their homes here will be forced to move to other areas for employment. Wild areas for the public to enjoy can be just as well provided through multiple use forests which make the land open to all segments of the community and permit the continued growth of the local economy. 715-762-3231 Thank you. STATEMENT OF PATRICK RYAN, TIMBER FARMER AND PRODUCER OF WEBSTER, WISCONSIN BEFORE THE U.S. SENATE SMALL BUSINESS COMMITTEE · JULY 5, 1978 AT PHILLIPS, WIS. My name is Patrick Ryan. I live near Webster, Wisconsin and own a tree farm of 200 acres. Until May of this year I have been engaged as a timber producer on my own and other private lands which I managed for other individuals. Low prices for pulpwood, our major product, and inflationary costs of production have forced me to look for another form of livelihood. I am aware that the primary concern of this hearing is on costs of operating federal timber, but because I happen to believe that high costs are inevitable in any kind of forestry operation today, I don't believe the United States Senate can look at costs without looking also at revenue derived from production. Inevitably you will find a cost-price squeeze. In addition to the direct production costs, the expense of practicing good forestry must be considered. It is my opinion that much of the objection to federal forestry requirements is not over the practices themselves such as slash disposal, saving small trees, leaving strips of timber along streams, selective cutting, etc., but rather it is that the prices received for pulpwood are so low that they do not cover these costs. And timber operators have no control over the prices of their product. This is not the first time a Senate Small Business Committee has looked at the problems of the independent timber producer. Senators Proxmire, Humphrey and Morse held hearings in 1958-1959 on the same subject which revealed some interesting facts. You are, I am sure, aware of this earlier study which culminated in a report dated May 5, 1959-a copy of which is in your staff's hands. The principal findings of that report pertaining to pulpwood were set forth in Section 6 on Page 5 PRICING OF PULPWOOD. quote. Section 6. Pricing of pulpwood Allegations have been made at committee hearings that price collusion might exist in the establishment of pulpwood prices. Research data on price trends indicate abnormal behavior of pulpwood prices, which have remained consistently below average price levels since 1946. This has had a serious effect on the incomes of small producers of forest products whose costs have risen much faster than the price of the pulpwood they sell. To determine whether collusion exists in pulpwood pricing and whether the Sherman or Clayton Antitrust Acts are being violated, the committee recommends that the Department of Justice and the Federal Trade Commission make a thorough investigation and, based upon the evidence found, propose proper action. These findings were based upon data as follows: Between 1947 and 1957: Paper prices rose 39.1% Paperboard prices rose 28.1% Labor cost per ton of paper rose 38% Logging equipment costs rose 50% All wholesale commodities rose 18.7% And pulpwood prices rose 9.5% While paper industry profits rose 70% (after taxes) Pulpwood-in the Northeast, South and here in the Lake States--is known commonly as poverty wood. Not only are small timber producers constantly kept in financial difficulties by low pulpwood prices but tree growers are unable to recover the costs of taxes, planting and tending their trees over the rotation. I believe you will find (if you look) that the Forest service is selling its timber below cost of production and thus subsidizing the pulp industry. The Kennedy Administration promptly undertook in 1962 an anti-trust suit against the Wisconsin paper industry, subpoenaed a huge volume of records which revealed collusion on the part of paper mill buyers of pulpwood, went to court and obtained a decision of guilty resulting in fines to the offending companies. For a while some competitive pricing took place but as I will show by new data, the same old monopolistic squeeze on prices is the basic cause of timber producer unrest today--and only by prompt federal anti-trust action can relief be obtained. Now nearly 20 years have elapsed since the first Small Business Committee made its landmark study and the trends are again being repeated. In 1967 pine pulpwood prices were $21.50 per cord, popple prices were $15.00 per cord--both went up about $3 a cord in the 10-year period--in response to the anti-trust convictions. Since 1967 pine has gone up to $31.00 a cord and popple to $24-roughly 50%-while all other prices have risen86%. Paper prices, on the other hand, have risen 79% and the profits in the paper industry are at record levels. The timber producer who is at the bottom of the heap is subsidizing stockholders, management, labor and the equipment manufacturers. Independent loggers are not organized into a bona fide association representing their interests. The only group purporting to speak for them is a front association heavily subsidized by the paper mills. We have no OPEC representing us! Unless small loggers and timber growers are given relief from monopolistic pricing of their pulpwood product, I do not believe this Senate Committee will have gone to the root of our problem. I would urge that your Committee recommend another anti-trust investigation at the earliest possible moment in order to demonstrate credibility in the public interest. And if your Committee wishes to delve into the question of Forest Service timber sales, you will probably find that the federal government is not recovering its initital costs of sale preparation, roads, reforestation and protection. Two sales on the Superior National Forest covering 924 acres cost the federal government $50 more per acre than they brought in revenue. Thank you for the opportunity to present my views. Patrick Ryan |