Forest Products Industry Forum

Highlights from Forum on the Forest Products Industry
September 27, 2002 Sawmill Inn, Grand Rapids, MN

Ron Salisbury (left) of Potlatch, Lowell Pittack of Pittack Logging and Joe Maher of Blandin
Paper Mill share insight on pressing issues facing the forest products industry.

Panelists:
Joe Maher of Blandin Paper Mill, Ron Salisbury of Potlatch and Lowell
Pittack of Pittack Logging

Guest speaker Kevin Lyden of UPM-Kymmene talks about change in his address
to business owners and managers at the first JOBS 2020 industry forum on September 27th.

Keynoter: Kevin Lyden, CEO of UPM-Kymmene North America

In this first of a seven-part forum series on creating a common vision for the future of the
Itasca region, panelists were asked to discuss issues and trends affecting their businesses
and identify what their companies need from the community to survive and thrive.

Pressing Issues:

• Increased demand for “green” wood resulting in increased capital costs
• Insurance rates are high (up 40% for Pittack Logging in the last 3 years)
• Cut-to-length logging requires high quality/trained operators (6-12 months training required)
• Minnesota fiber costs are the highest in the country; significant competition in foreign
  sourced fiber
• Instability of local mills leaves loggers unsure of what species to cut
• Local transportation costs are high relative to other regions. Current relevant legislation
  at the state level.
• Environmental pressures have significantly reduced the amount of aspen harvested off
  federal lands
• Forest lands are not being managed well
• Potlatch needs to have a niche market; over capacity in commodity products (such as paper)
  is a real problem. Cloquet plant sold; Brainerd shut down.
• Today’s paper pricing is the same as in 1982
• Blandin paper machines 3 and 4 are outdated. Together, they employ 300 and produce
  170,000 tons of paper; Augsburg machine commissioned in 2001 employs 250 and
  produces 420,000 tons
• Survival!

Global Trends:

• Consolidation and mergers; the big are getting really big
• Loss in local ownership, decision making slowed
• Global paper capacity continues to outpace demand despite 39 mill closures and 204
  paper machine shut downs since 1998
• German lumber entering Lakes States Market via Duluth/Superior
• Paper making capacity continues to outpace demand

Future Outlook:

• Will Potlatch be here in ten years? Uncertain. Innovation is key. Potlatch has developed
  and patented four new products – one at the Grand Rapids plant
• Develop processes that are not dependent on wood.
• Potlatch wants to be known as the innovator – getting lean and mean, outsourcing,
  focus on niche markets
• Blandin’s vision is to become an Augsburg – the place for expansion

How Can the Community Support Your Company?

• Be ready to respond rapidly to new investment opportunities
• Decide NOW what you want the community to be (have the machine #7 discussion now)
• Provide a pool of qualified labor
• Promote public awareness and lobby for appropriate forest management policies at
  all levels of government
• Help keep private forest lands in production by increasing incentive programs for
  private landowners
• Recognize that local businesses and entrepreneurs provide the best opportunity for
  economic growth
• Be proactive; simplify requirements; prepare the community for what business needs

JOBS 2020 Chairman Jim Hoolihan encourages JOBS 2020 participants to attend all seven industry forums.