lachia are not available. Lumber output has remained fairly stable over the past 50 years. Pulpwood production has increased significantly in recent years but this appears to have been more than offset by drastic declines in fuelwood cutting plus at least modest declines among miscellaneous products.) This points to the need for focusing efforts on the demand side of the supply-demand equation.

THE FOREST-BASED INDUSTRIES

The potential contribution of the forest of Appalachia to regional income depends heavily upon the economic soundness of the industries using wood as a raw material. The primary reason for this rests with the fact that most of the economic uplift that can be expected from the forests of Appalachia must come from measures directly aimed at increasing the use of wood. This follows since improvements in the forest resource supply which have been taking place have not resulted in significant increases in timber sales at the stump or in the consumer market.

Among the industries using wood as a basic raw material, those accounting for a very large share of total usage have failed to keep pace with general economic expansion. Three major exceptions are the woodpulp, plywood, and hardboard industries. Unfortunately the group which accounts for most of the lag, namely the lumber and wood products group (SIC 24), tends to be concentrated in Appalachia whereas those which have enjoyed relatively healthy expansion occur less frequently in the region.

Evidence indicates that the lumber industry, the major component among the nongrowth forest based industries, could likely have shared more favorably in the expanding U.S. economy if its product prices had not risen more rapidly than those of competing materials. This is especially true in the case of the hardwood portion of the industry inasmuch as its prices have risen more than lumber prices as a whole. It follows from these arguments (assuming no resource scarcity) that the lumber and wood products industries must become more efficient in order to produce better products at lower prices if the use of wood is to be increased at the consumer level and production from the forests of Appalachia similarly increased. In recent years this group of industries has been adjusting rapidly to more efficient plants and product prices have tended to level off. Both extremely large and very small plants recently have proven to be inefficient, hence the range in plant sizes has been narrowing.

Since Appalachian plants in general were quite small, the adjustment there has been almost entirely toward fewer and larger plants. This is brought out by the fact that Appalachia's share of all U.S. lumber and wood products establishments declined from 16.6 percent in 1947 to 11.6 percent in 1962. But its share of all employees declined only from 9 to 7 percent while total production remained fairly stable during the same period.

The immediately foregoing analysis suggests that the legislation being considered here should authorize and encourage the Regional Commission to facilitate these adjustments toward more efficient wood processing industries in Appalachia. Unfortunately, the more capital intensive firms that will result may offer somewhat fewer jobs in the

short run. However, they are likely to be able to provide better paying and more stable jobs in the long run.

The Commission might facilitate these desirable adjustments by encouraging the consolidation of small firms and by assisting them in locating at advantageous points. These efforts should be coordinated with governmental loan programs, such as the ARA. In effecting such coordination, fewer but larger loans to more carefully screened applicants would likely result in larger and more efficient operations.

Despite the trend toward fewer and larger plants in the lumber manufacturing business, the possibility of establishing a new concern with a small amount of capital is likely to persist for many years. This possibility has led to very costly business instability in the region in the past. For instance, in West Virginia, there were 811 active entrepreneurships in the sawmill business in 1959 but by 1963, 525 of these had ceased operations and 195 entirely new operators had entered the field.

This suggests that some type of entrepreneurial training and technical assistance programs should be launched in the region. Perhaps a broadening of the forestry extension program handled by the landgrant colleges would be the most effective approach. But however handled, our experience along these lines in agriculture demands that we proceed with caution in order to avoid encouraging small, inefficient, low-income producing operations. In other words, if a wood products training program is to make a positive contribution to the region's economic growth, it should be as much concerned with discouraging the formation of new poor-risk firms as with encouraging those likely to succeed.

RESEARCH IN FOREST PRODUCTS

Research probably offers the greatest hope for bringing about improvements on the demand side of the forest products supply-demand equation and consequently offers the best prospects for improving Appalachia's economy through its forest resources. (In the strictest economic sense, research which leads to product improvement amounts to supply improvement which it is assumed will eventually lead to greater sales. The technical economic terms of supply and demand purposely have been used loosely here in order to simplify the arguments presented.) Research not only leads to improved industrial efficiency and hence lower product prices but also to product innovation and thereby to completely new markets as well.

The forest products industries have a notoriously poor record with regard to investment in research. But this is not surprising when one considers the fragmented structure of these industries. In the case of lumbering, for example, the concentration ratio (usually measured as the percentage of the value of shipments within an industry handled by the few largest firms) is one of the lowest in U.S. manufacturing. Therefore, as most economists agree, it is doubtful that individual firms in such an industry can afford to make significant investments in research though in the long run, their very survival may depend upon it. As Professor Galbraith has pointed out:

Improvements in technology do not come by accident. They are the result of investment in highly organized scientific and engineering knowledge and skills. Yet we do very little to increase the volume of this investment, except

perhaps where some objective of military urgency is involved. Rather we accept whatever investment is currently being made and applaud the outcome (John Kenneth Galbraith, "The Affluent Society”).

Under such circumstances the question is: How can greater investment and thereby greater emphasis on research be obtained? Perhaps a two-pronged attack is in order: increased public funds for basic research and a means for encouraging acceleration of applied industrial research.

Basic research in the modern world requires a great concentration of effort to produce the real breakthroughs that are capable of revolutionizing whole industries. And, indeed, at the rate hardwood timber is accumulating in Appalachia and elsewhere, perhaps nothing short of a significant research breakthrough will accomplish the results we are seeking. As a consequence, I would strongly urge an increase in the availability of public funds for basic research in the utilization of hardwoods.

Every effort should be made to see that any additional public funds made available for forest products research are spent for basic research. Too often in the past we have yielded to the temptation of scattering governmental research appropriations among many small centers which are individually incapable of performing basic research. If such funds should be forthcoming, it is conceivable that most of the money should be spent through existing facilities outside of Appalachia, such as the U.S. Forest Products Laboratory, for example. Certainly a proliferation of small laboratories throughout Appalachia should be avoided.

The advisability for encouraging more applied research among the forest products industries, or among all fragmented industries for that matter, presents a problem which warrants more study. There is no doubt but what firms in such industries are at a disadvantage compared with the few large firms in concentrated industries when it comes to investing in product development. Personally, I would favor a special tax credit for money spent on research through multifirm associations as opposed to that spent within the firm.

It seems impossible to overemphasize the need for more research effort if the forests of Appalachia are going to play a significant role in regional economic recovery. The argument in favor of this approach has been summarized quite succinctly by a recent report of the Forestry Research Advisory Committee of the USDA which stated in part:

Recent trends in consumption of wood products, together with increased growth and supply of timber, point up an urgent need for expanding markets to use available wood supplies. Also, there is much unemployment and need for economic development in many areas where the bulk of the Nation's surplus timber is located. Full contribution of this resource to the Nation's economy can be realized only through finding ways of improving markets for these materials. (Report and recommendations of the Forestry Research Committee, U.S. Department of Agriculture, developed at its 13th meeting, Oct. 26-30, 1964.) Thank you, Mr. Chairman.

Senator RANDOLPH. Thank you, Dr. Yoho.

Mr. Mersereau, will you present your statement?

STATEMENT OF H. S. MERSEREAU, VICE PRESIDENT AND GENERAL MANAGER OF THE SOUTHERN DIVISION OF GEORGIA-PACIFIC CORP., AUGUSTA, GA., ON BEHALF OF THE FOREST INDUSTRIES COUNCIL

Mr. MERSEREAU. Mr. Chairman and members of the committee, I am H. S. Mersereau, vice president and general manager of the southern division of Georgia-Pacific Corp., Augusta, Ga. My company has major land and mill investments in several of the Appalachian States. All of the Appalachian industries are deeply conscious of the economic conditions of the region. I am appearing here this morning as a representative of the Appalachian committee of the Forest Industries Council.

Since November 1963 the FIC Appalachian committee has been working with the President's Appalachian Regional Commission and its successor the Federal Development Planning Committee for Appalachia; the Forest Service and Department of Agriculture officials; and private consulting foresters to develop a sound workable program for the Appalachian region's forest economy.

The Forest Industries Council is the policy coordinating organization of the three related forest industries: lumber, pulpwood, and paper. The three national associations comprising the council are: The Pulp, Paper & Paperboard Institute, which is composed of many pulp and paper product associations and represents almost the entire papermaking industry; the American Pulpwood Association, representing private landowners, processors, suppliers, and pulpwood producers throughout the Nation; and the National Lumber Manufac turers Association, which is composed of 15 regional, species, and products associations, representing lumber and wood products producers throughout the country.

During the past 14 months the FIC Appalachian Commitee has conferred periodically with numerous Federal and private organizations; has studied the many reports; and is extremely pleased to report many of its suggestions are included in the administration's program.

We participated in conferences with Agriculture and Commerce Department officials in the formation of this specific proposal. It represents an important step forward in the preparation of legislative proposals. All parties affected by the proposal worked together. Our chairman today can take much of the credit. We have successfully ironed out most of the disagreements over the intent of the proposal and the meaning of the language and are in general agreement on what is the best possible approach. I testified on this program in the last Congress and have sat in on discussions since. I am very pleased to report that industry, agencies, Commission, and committee staff have conscientiously worked together to hammer out a proposal which stands a good chance of working to the betterment of the Appalachian timber economy.

I want to express my thanks and that of the Nation's forest products industries to Mr. Sweeney, Mr. Pyles, and to this committee for helping create the spirit of cooperation from which has flowed this program. We hope that this is a prelude to similar cooperative efforts on other legislative proposals affecting the forest industries, and the

communities dependent on their operations for jobs, payrolls, and economic stability.

The language proposed here in section 204 was jointly created. We still have some questions which I want to raise. The forest products industries intend to make this program work for the benefit of the Appalachian forest economy, which includes timber growers, woods workers, manufacturing workers, consulting foresters, manufacturers, and forest communities.

INDUSTRY PROMOTION

The forest products industries are actively working to improve this forest economy by expanding the markets for the abundant forest resources now standing in the Appalachian Mountains. We cite with pride the oak promotion program of the Appalachian Hardwood Manufacturers, Inc. This is an industry association program which in a few short years has resulted in a dramatic increase in oak used for furniture.

In 1962 we found that oak, the finest cabinetwood in the world, was not holding its rightful place in the domestic furniture market. An Oak Committee of the Appalachian Hardwood Manufacturers, Inc., went to work to find out why oak was not being used for fine furniture. The answers: poor design, poor finishes, reputation of massiveness. The association members adopted a 45 percent dues increase to carry out a promotional and education program for Appalachian oak. We worked with finishing firms and designers; we held "oak workshops"; we hired a public relations counsel; and we carried out a research project at North Carolina State College to find the best way to bleach oak to insure its taking the desired finishes. The association alone has spent $50,000 in the last 2 years telling the story of Appalachian oak. The individual companies have spent additional amounts.

As a result, the market position of fine Appalachian oak has been strengthened. In 1962 only four major furniture firms were offering oak suites. Last year 50 firms were offering oak suites that show style and elegance in design. Coupled with this recognition has been a steady increase in manufactured quality and an increased return to the Appalachian manufacturer and timber grower. The potential future increase for oak and other Appalachian hardwoods is almost unlimited.

This spring the Appalachian Hardwood Manufacturers, Inc., will take a trade show to London, England, to promote the expanded use of quality Appalachian hardwoods in European furniture styles. An exploratory trip to England last year was enthusiastically received and our program shows every promise of creating an expanding market for our superior hardwoods.

No less dramatic has been the upsurge in pulp and paper production from Appalachian woods after intensive research developed a practical approach to pulping hardwoods. New processes are being developed which will substantially reduce the water requirement for pulping and allow expansion of pulp and paper operations throughout Appalachia. We already have an abundance of timber-these new processes may help us convert it into jobs, payrolls, bank deposits,