Demand growth and price responsiveness can influence inventory tipping points of high-grade white oak.

Gaurav Dhungel, David Rossi, and Justin Baker

White oak timber is fabricated into a myriad of forest products such as caskets, cabinets, railroad ties, and pallets. However, high-quality white oak trees (large-sized trees with few or no defects) are primarily used for barrel production for aging bourbon, rendering white oak stave logs a niche market in the forest products industry. As such, white oak is a commercially important tree species in the US and across bourbon supply regions in particular. To put this into perspective, the Commonwealth of Kentucky produces almost 95% of the world’s bourbon. Oak barrels are the top wood product export from Kentucky, and bourbon distilleries make up a billion-dollar industry across the state.

However, both region-wide studies as well as isolated case studies in the Central Hardwood Region (CHR) indicate a bottleneck in the sapling and midstory oak trees. Abundant seedlings and overstory indicate low oak recruitment and a gradual replacement by opportunistic species like maples. This ecological phenomenon is widely known as “mesophication.” The unintended consequence of fire suppression policies beginning around the 1930s in tandem with harvesting practices like selective logging and single tree selection has created room for closed-canopy forests to grow.  This hinders the ability for fire-adapted species like oak to regenerate in the understory and recruit into the midstory, thus offering shade-tolerant species like maple a chance to proliferate.

As a result, the contemporary stand structure of historically oak dominated stands is disproportionately mature and of advanced age.  In the near term, abundance of large-sized timber is beneficial to forest industries because large diameter-sized trees generally produce large clean boles and are thus more economical to harvest and process. Nevertheless, if these large-sized trees are harvested or die out without sufficient presence of young trees for replenishment, these forests cannot sustain themselves in perpetuity unless intervened with sound management practices. As demand for high-quality white oak logs continue to remain strong amidst longer-term sustainability concerns, efforts to bring together white oak dependent stakeholders for developing and implementing sustainable oak management practices is gaining momentum. The establishment of White Oak Initiative and the recent formation of the Congressional White Oak Caucus are examples of stakeholder groups that have expressed concern over white oak sustainability. 

Quantitative studies providing a future outlook of timber supply in the CHR are lacking. While timber market models have advanced in recent years, recent studies typically provide regional-, national-, or global-scale projections, and often lack detail on the effects of market drivers on future inventory change for particular forest types or species groups. To this end, a recent publication has expanded the spatial scope of the Sub-Regional Timber Supply (SRTS) model to include states in the CHR and illustrates the importance of market demand parameters – product demand growth and price responsiveness – in influencing inventory decline of high-grade white oak trees. We find that as the quantity demanded for high-quality white oak grows, more price-responsive demand or less price-responsive supply delays the time before white oak inventory reaches a “tipping point.” At this point, standing white oak inventory volume over the CHR reaches a maximum, before eventually declining. This analysis is the first attempt to offer insight on the effects of market drivers on future inventory change for white oaks in the CHR.  

We examined the sensitivity of high-grade white oak inventory to a range of hypothetical demand growth scenarios (i.e., from a 0.5% increase in quantity demanded per year to a 10% increase in quantity demanded per year). Each demand scenario is interacted with a range of supply and demand price sensitivities to understand how white oak tipping points change under markets characterized by alternative degrees of price responsiveness. High demand price sensitivity means that percentage increases in white oak log prices lead to greater percentage reductions in demand. Similarly, high supply price sensitivity means that percentage increases in white oak log prices lead to lower percentage increases in supply. As demand becomes less responsive to price changes, inventory peaks sooner. When instead we subject the rising demand scenario to a function with more price-responsive demand, inventory peaks later. Alternatively, when we model a market with a supply that is not as price responsive, inventory peaks further out in the future.

These simulations show that with a scheduled lower annual rate of rising quantity demanded for high-grade white oak, a more adaptive demand-price response provides added sustainability of the growing stock inventory, as it delays the time before inventory begins to decline and tends to raise the volume of inventory available by that time. These projections also show that less adaptive supply responses can have the same effect as more adaptive demand responses in the market for high-grade white oak logs. This result has implications for policy design, as targeted incentive structures can be developed to compensate forest landowners for other ecosystem service values associated with their lands as well as initiatives or commitments by cooperage companies to use certified oak products, both of which could potentially reduce supply price responsiveness. Alternatively, similar outcomes could be achieved with policies intended to increase the price responsiveness of stave logs purchasers. Such demand-side interventions might include subsidization of technological improvements which more efficiently utilize white oak log or the promotion of substitutable species used by oak barrel manufacturers, such as European oak or French Oak.

Reference

Dhungel, Gaurav, David Rossi, Jesse D Henderson, Robert C Abt, Ray Sheffield, and Justin Baker. 2023. “Critical Market Tipping Points for High-Grade White Oak Inventory Decline in the Central Hardwood Region of the United States,” Journal of Forestry, fvad005: 1–11.  https://doi.org/10.1093/jofore/fvad005