PORTLAND (AP) – Maine’s forest products industry faces new challenges and competition ahead and must invest in new technologies and be assisted by the state to remain an economic force, according to a new report on the future of the state’s forest-based economy.

Maine has the largest and most diverse forest products industry in New England, the report says. But global competition is undermining the paper mills, saw mills and other businesses that form the industry’s base.

The state-sponsored report, called the Maine Future Forest Economy Project, took nearly two years to complete. It was to be released Friday in Augusta at a meeting of a state task force studying Maine’s natural resource-based industries.

Alec Giffin, director of the Maine Forest Service, said the project grew out of concerns that ongoing manufacturing layoffs and mill closings are leading to a breakdown of the forest products industry.

The report’s conclusions, and the reams of information in it, should help policy makers and businesses make better decisions about how to ensure the industry’s future, he said.

“My hope is that this will serve as a major catalyst for action,” Giffin said.

The $300,000 report was funded by the Maine Department of Conservation, the Maine Forest Service and the Maine Technology Institute. It was researched and written by Innovative Natural Resources Solutions LLC of Portland.

The reports paints a picture of a mature industry in transition. It said companies are investing in equipment to become more productive, but cutting jobs in the process. Between 1997 and 2002, the overall forest products work force shrank from 23,430 to 18,130, roughly 23 percent.

During the same period, capital spending and productivity increased by a similar percentage, and average wages rose 20 percent. The trend of a smaller work force becoming more productive is likely to continue, the report said.

Even with a shrinking work force, the forest products industry is still among the state’s top employers, along with health care, tourism and retail trade.

To help the industry, Maine should change its tax laws to encourage private investment, improve the relationship between industry and government, and increase efforts to transfer university-sponsored research into new commercial applications, the report said.

Future job growth in the industry may have its best potential in new products and technologies, the report said. It highlighted the work being done at the Advanced Engineered Wood Composite Center and the Pulp & Paper Process Development Center at the University of Maine at Orono.

One example of research technology spinning off into the private sector is Correct Building Products in Biddeford, which makes composite decking. The report also hinted at the evolving field of bio-based products, such as turning pulp mill sludge into fuel or chemical additives.

At the same time, the report said the industry has challenges ahead of it.

For instance, four Maine paper mills that now focus on coated groundwood, used in magazines and catalogs, can expect intense competition in the future from new, low-cost production that is coming online globally that equals 75 percent of Maine’s capacity.

Home building has also helped the state’s softwood lumber industry. But the threat of rising interest rates, Canadian competition and uncertainty regarding tariffs between the two countries present challenges.