Massoud Ahmadi, Ph.D.

Fereidoon Shahrokh, Ph.D.

Principal Investigators

June 1999

Telephone: (410) 767-6398

Maryland forests play a valuable role in the state's economy. This role is not just limited to economic rewards, but also includes the enhancement of the quality of life in Maryland, making the state a more attractive place to live and work. In addition to providing water, fish, wildlife, natural beauty and opportunities for natural environmental recreation, the forests contribute significantly to the economic basis of the local communities. The contribution of forests to the local economy results from the commercial use of forest resources, i.e., expenditures associated with recreation, timber and timber-dependent activities. As a raw material, timber is manufactured into many products ranging from housing, furniture and toys to paper, fuel wood and Christmas trees. Because of its widespread application, timber plays a significant role in the economy of Maryland.

This study, conducted at the request of the Maryland Forestry Task Force appointed by the Governor, highlights for the first time the economic importance of the forestry industry in Maryland. The economic analysis of the forestry industry will measure the changing role of the industry in Maryland and the U.S. from 1988 to 1997. The contribution of the forestry industry to the economy of Maryland also is measured in terms of additional output, employment, income, value added, and selected state and local tax receipts generated by the industry's transactions statewide. The impact of the forestry industry on other Maryland industries and institutions is estimated using a Maryland specific input-output model obtained from the University of Minnesota IMPLAN Group. Other economic data for this analysis are obtained from a detailed survey of the state core forestry industries, and internal labor data derived from ES-202 files.

Analysis of the shares of local timber and timber-based products in forestry industry's total input requirements shows that approximately 67 percent of the harvesters' input purchases are supplied by Maryland forestry industry. Shares of local timber and timber based products amounted to an estimated 19 percent for the primary manufacturing, 2 percent for the secondary manufacturing, and about 1 percent for the construction sector.

Local sawmills and planing mills supply the largest share of timber-based inputs to Maryland's forestry industry, estimated at 45.7 percent of the total. Forestry industry purchases from the harvesting sector amount to about 19.7 percent of the total, the second largest share. The industry's purchases from the timber management sector represent the third largest share or about 18.9 percent of total timber needs. Finally, paper, veneer, plywood, and other timber-based products account for the remaining 15.7 percent of the forestry industry purchases.

The forestry industry has significant links to other Maryland industries. Nearly 30 percent of the industry's expenditures is on local intermediate products, 21 percent on employee income, 18 percent on proprietor and other property type income (interest, rent and profit), and about 3 percent on indirect business taxes. The imports represent about 28 percent of the industry's total annual outlay.

By far, the largest share of the forestry industry's output, or about 40 percent of the total, is consumed by Maryland industries as intermediate inputs. The exports of forestry products to locations outside Maryland account for about 24 percent of the industry output, the second largest share. Capital formation and inventory accumulation account for about 21 percent of the industry's output. Consumption by Maryland households represents about 8 percent of the industry's output. Finally, federal, state and local government purchases account for the remaining 6 percent of the industry's output.

The Maryland forestry industry is estimated to directly generate 2,468 jobs, $253 million of gross sales, $74 million of employee income, and nearly $100 million in value added. The average wage for the forestry industry as a whole, expressed in 1998 dollars, amounts to an estimated $29,931, about the same as the statewide average for all Maryland industries. Therefore, about 5 percent of the jobs and 4 percent of the payroll of all establishments included in our forestry industry definition are estimated to be dependent on timber and timber products produced locally in Maryland. Total economic impact of the forestry industry on all Maryland industries and services is estimated to be $450 million in gross sales, $141 million in employee income, $212 million in value added and about 4,847 jobs statewide.

Total fiscal impact of the Maryland forestry industry is estimated to be $1.7 million in state retail sales tax receipts, $4.2 million in personal income tax receipts, and about $2.3 million in local personal income surtax receipts. Therefore, the projected total annual increase in state and local tax revenues as a consequence of the expenditures generated by Maryland's forestry industry is estimated to be $8.2 million in 1998 dollars.

According to a 1986 survey by the U.S. Forest Service, Maryland has a total of about 2.4 million acres of timberland. Of this total, about 245,000 acres are in state or local government holdings, about 130,000 acres are in the hands of the forest industry, and 2.05 million acres are privately owned. Therefore, about 43 percent of Maryland's total land area of 6.3 million acres are in timberland, far exceeding the 34 percent in agriculture, and the 23 percent in urban areas. Western Maryland hardwood, the dominant state timber, comprises about two-thirds of the state forests. Eastern Shore pine represents the remaining one-third of Maryland forests.

Structure of the Core Forestry Sectors

The core forestry sectors, including timber management, harvesting, and primary manufacturing, are central to the vitality of Maryland's forestry industry. These sectors produce timber and timber-related products that are either consumed directly as finished products or remanufactured into a variety of other consumer products. To assess the structure of Maryland's core forestry sectors, the Maryland Eastern Shore RC&D Council Inc. conducted a survey of 674 establishments engaged in Christmas tree, forestry consulting, firewood, paper, logging and sawmill activities. Although this survey was intended to capture the characteristics of local establishments, the survey universe was extended to include 100 Pennsylvania logging, firewood, and sawmill activities as they operate extensively in Maryland. The core forestry establishments were asked to report their activities and customers and to detail their revenues and expenditures. A copy of the survey is included in Appendix II.

Table 2 summarizes the distribution of surveys for each activity along with the corresponding response rates. Out of the 674 selected forestry activities in Maryland and Pennsylvania, a total of 148, or 22 percent, returned the surveys in time to be incorporated in the database. The response rate ranged from a low of 16 percent for firewood companies to a high of 100 percent for forestland or paper companies. The logging contractors received the bulk of the surveys (about 33 percent of the total), followed by firewood companies (25 percent), Christmas tree growers (18 percent), sawmills (15 percent), consulting foresters (9 percent) and forestland companies (less than 1 percent).

To project the size and specific characteristics of the core forestry industries in Maryland, the companies that responded to our survey were grouped by type of activity. A statistical weight was then calculated for each of the core forestry sectors in Maryland. These weights were determined by estimating the percentage of companies in each group returning the survey. For example, out of the 120 Christmas tree growers in Maryland, only 44 responded to our survey. The weight estimated for the Christmas tree companies was, therefore, 2.7. In estimating these weights, establishments with annual sales of over $500,000 were excluded from both the total number of companies and the number of respondents in a given forestry activity. We assumed that the smaller forestry companies responding to the survey were better representative of other smaller companies in their group that did not respond to the survey. These weights were subsequently used to augment reported statistics on employment, payroll, capital expenditures, etc. The statistics for larger establishments (sales over $500,000) were then added to projected statistics for smaller, non-responding companies. Finally, out of the 100 surveys mailed out to Pennsylvania companies, only 4 returned the surveys. Therefore, with the exclusion of the four returned surveys, our projections of the core forestry activities exclude Pennsylvania establishments.

To assess the characteristics of individual core forestry sectors, the survey results are grouped into six categories: forestry consultants, forestland and paper companies, Christmas tree growers, firewood companies, logging operators, and sawmills. For each core forestry sector, our projections for operating expenditures and production are summarized and shown in the following tables.

Consulting Foresters

Table 3 summarizes data on operating expenditures and income of Maryland's consulting foresters. Out of the total of 64 surveys that were mailed out to Maryland's consulting foresters, a total of 16 or 25 percent returned the surveys in time to be incorporated in the database. The majority of consulting foresters operate in more than one county. In fact, companies that reported "multi-county" jurisdiction returned 75 percent of the all surveys in this sector. For calendar year 1998, the consulting foresters reported a total of 14 full-time equivalent employees, an annual payroll of $450,000, capital expenditures of about $4 million, and annual income of $52.3 million. About $26.7 million of income was generated from Maryland landowners (51% of the total) and $25.6 million from landowners located outside Maryland. The bulk of the income generated in Maryland was from the sale of veneer logs, estimated at $25.2 million or 94 percent of the total.

Source: Maryland Forestry Industry, 1999 Survey

The projections for the annual expenditures and production of sawmill companies that operate in Maryland are shown in Table 8. Out of a total of 74 surveys that were mailed out to Maryland's sawmill companies, a total of 20 or 27 percent returned the surveys. The largest number of survey responses (15 percent) was received from sawmill companies that operate in Charles County. Sawmill operators in Garrett, Harford, Wicomico, and Worcester counties generated the second largest number of responses, or about 10 percent each. Sawmill companies in other Maryland counties contributed to the remaining 45 percent of the survey responses.

Source: Maryland Forestry Industry Survey, 1999.