IMPROVING THE ECONOMIC VALUE
OF COASTAL PUBLIC FOREST LANDS

RESTORING ECONOMIC AND ECOLOGICAL HEALTH
TO OREGON PUBLIC FORESTRY PRACTICES

TOM BENDER
December 1994

SUMMARY

Forestry, like many social issues, has become caught in a gridlock between those who wish to preserve a resource and those who want to maximize the immediate benefits from it. Fortunately, a new perspective is now emerging which appears to offer substantial benefits to all parties.

New scientific evidence indicates that proper long-rotation forestry, with cut cycles from 180 to 240 years, can provide dramatic increases in timber and financial yields, while restoring the ecological health of the forest system.1

The non-timber economic value of other uses of the mature and healthy forests resulting from such cut cycles can also significantly exceed the timber value, adding even more to the economic benefit of these forest management practices.

TIMBER: Sustainable yields possible with long rotations can DOUBLE current yields, while providing an amazing NINE-FOLD increase in net economic returns from timber production.2 3

FISHERIES: Restoration possible with long rotation harvesting can produce annual revenues in the order of seven to twenty times current timber revenues.4

RECREATION: Development possible with long rotation harvesting can produce annual revenues in the order of five to ten times current timber revenues.5

SPECIAL FOREST PRODUCTS: Harvests such as mushrooms and medicinals, possible with long rotation harvesting, can produce significant annual revenues.

TOTAL net economic value of long rotation forest management thus appears to be roughly TWENTY to THIRTY TIMES that of present management practices!

NEW CONCLUSIONS ABOUT FORESTRY MANAGEMENT

Recent scientific studies have shown several vital elements of forestry practices that have been ignored in earlier management practices:

* Timber production per acre of Oregon coastal forests, particularly with commercial thinning, does not drop off significantly beyond the traditional CMAI point for many, many years.6 Harvest cycles can be extended several times the conventional 60 year rotations while still staying quite near the maximum productivity. Such practices, in fact, often produce increase rather than decrease in net timber yield. They also typically produce a higher percentage of high value wood in larger logs.7 8 9

* Long-rotation timber harvest can sustain timber yields that would otherwise be lost from the disease, nutrient loss, soil losses, and fungal destruction of current timber management practices.10

* Extreme health impacts to humans, fish and wildlife have recently been shown to result from the use of organo-chloride compounds such as employed in present management practices.11

* Management costs have a major impact on net economic yield. They occur largely during the cut/replant/early growth part of the cycle. Longer rotations which eliminate cycles of these management costs produce far greater net economic returns.12

* Northwest Oregon coastal forests have exceedingly high risk of erosion causing soils loss impacting both timber and fisheries. Long rotations dramatically lessen soils disturbance and loss affecting fisheries and timber production and their revenues.13

* Soil microorganism health issues play a much more vital role than previous suspected in the reforestation success, productivity, and disease-resistance of forest stands.14

* Long rotation forestry creates a forest with more varied age classes needed for forest and wildlife health, without the need for "no-cut reserves".

* The non-timber product value of forest lands, which far exceeds that of timber production, has been ignored and damaged by past practices.

- Forest Service studies in 1989 and 1990 showed tourism, hunting, and recreation producing $122 billion vs logging revenues of $13 billion - TEN TIMES AS GREAT!15

- A 1990 Forest Service study showed that recreation fees could be three times as great as revenues from timber.16

- Salmon from the Smith River in California, even heavily damaged by logging, produced $7.8 million/year - more than the entire logging revenues from the basin.17

- A Forest Service study on the Salmon River in Idaho showed that a $14 million logging operation resulted in a $100 million salmon revenue loss.18

The following table, excerpted from "The Economics of Sustainable Forestry" presented by Mark Wigg to the Society of American Foresters, 1989, summarizes the impacts of many of these issues on the timber yield and net economic return of forests with different rotation lengths. Several factors make the long rotations far more profitable:

* Higher stumpage prices paid for larger logs, reflecting more high value wood.

* Larger harvest volumes - 60 yr. rotations cut stands before CMAI. Long rotation harvests almost twice as many board feet and 25% more cubic feet than short rotation.

* The largest reason for greater profits is that costs are reduced. Sixty year rotations require three times the site preparation, planting, release, thinning, and sales management as does a 180 year rotation.

FUTURE NEEDS, FORESTRY PRACTICES, AND MARKETS

Long range trends indicate a strong directionality towards greater future value of our forestry resources. There is a strong probability, for example, that there will be a larger population of Oregonians in the future desiring and needing to benefit from forest productivity and the financial value of that productivity. There is a strong probability that there will be a larger world population competing for a smaller base of available timber and forest resource products, and that the future value of those products will be greater than their present value.

Trends and forestry practices here and abroad indicate substantial competitive benefit in an Oregon focus on higher quality product and sustainable long-rotation practices with lower costs, higher sustainable harvest rates, and far greater profits. At minimum, they suggest not discounting future benefits in favor of immediate gain.

US - Timber harvests on many Oregon commercial forests have been increased to as much as 5% of holdings cut per year. This represents a twenty year total liquidation of the forest on those lands, major community disruption during a minimum 40 year wait until timber can again be harvested, and an order of magnitude increase in forest and fisheries stress. Such practices represent liquidation of the timber asset to pay corporate takeover costs, not forest practices necessary for either sustained yield, maximum economic benefit, or forest health. Such overcutting is rapidly depleting our state and national inventory of merchantable timber, which will result in an expanded future market for timber owners who will have timber available during such shortages.

GERMANY - Reports from 1993 visits to Germany and discussion with foresters there indicated that Germany has moved largely to a mixed crop timber rotation in the neighborhood of 250 years. The foresters indicated that "present-value" analysis is considered worthless in their analysis. They noted that Germany's currency has dropped to zero value twice in the last 80 years, and that fluctuation in interest rates give a false picture of forest productivity. Standing timber has repeatedly shown itself to be of greater value than the cash obtained from premature harvest. German forests have also suffered decreasing productivity from repeated harvesting (Plochman, 1968) which is potentially tied to loss of soil fungal health.

JAPAN - Visits in 1991 and 1994 to forests in the Nagano, Shizuoka, Yamanashi, Miyagi, and Kyoto Prefectures resulted in surprising conclusions about current Japanese forestry practices. With the world currency market favoring raw log imports from the U.S., it was supposed that Japanese foresters were taking advantage of the opportunity to restock and maximize standing timber growth available for future harvests. This proved not to be the case.
Observations repeated showed, with the exception of one temple-owned forest in Kyoto, that forest management was virtually non-existent. Forest areas were covered with shrubs and non-merchantable tree species. The land owners indicated that with timber prices depressed, they could not afford to put people into the forests to improve forest management.

WORLD - A recent study indicated that accelerated timber harvesting for immediate financial benefit is rapidly destroying the sustainable yield of forests worldwide. In ten years, only a few countries will be left with export capability, with a yearly production of only a fraction of current board ft/yr.



WHO SHOULD GET THE PROFITS FROM BETTER FOREST PRACTICES?

Counties and other taxing districts would be wise to press for re-examination of the current legislative framework that grants ODF roughly 35% of forestry revenues for management costs. This framework needs to be re-examined for several reasons:

* The management cost agreement on other similar Oregon public forests is less (31% for Common School Fund Lands). This indicates that at least a 12% reduction could be argued even under current practices.

* This management cost ratio has covered management costs on all state-managed lands without the Tillamook Forest, representing about 70% of state-managed lands, producing significant revenue for the last 50 years due to the Tillamook Burn. With all forest lands producing revenue, reducing the management fee from 35% to 10.5% (a 70% reduction) would produce the same revenues.

* Increases in timber values in recent years is providing substantially more revenue without commensurate increase in management costs. A lower management ratio, even with no change in practices or costs, would provide equivalent revenues.

* Long-term rotation represents major savings (up to 75%) in management costs. This savings, if accruing to the counties and taxing districts, would represent a 40% increase in their revenues. It can well be argued, particularly with the magnitude of change in net economic yield that long-rotation harvest represents, that such savings should be passed on to the counties and other beneficiaries rather than being retained in ODF coffers. A nine-fold increase in net economic return represents a several-fold increase in ODF revenues, and major increase in ODF revenue excess over costs.

Renegotiation of the management fees thus could result in a substantially greater proportion of net revenues from long-rotation forestry benefiting these counties and taxing districts as well as the greater net revenues themselves.



HOW CAN WE MAKE A TRANSITION TO LONG ROTATION FORESTRY?

One workable strategy is the policy adopted by the County Board of Supervisors in Mendicino County CA. It permits annual harvests of 1.75% or 2% of standing forest inventory per year. With a young forest stand, wood production exceeds this, allowing an actual increase in harvest each year until growth rates reach and stabilize near the maximum annual increment. It thus permits a simple transition from short rotation clear cutting to a long rotation forest management.19



PENNY WISE AND POUND FOOLISH?

Why have current management practices so totally miscalculated the value of management alternatives? One reason is that they have ignored the impacts of practices in one area (timber production) on the productivity of other areas (fisheries and recreation, for example). Secondly, they have employed measurements which stress the benefits of maximizing immediate gain from overharvesting timber while failing to incorporate the much greater total benefits of other practices generating a larger and more sustainable revenue flow.

The use of "present value accounting" (PNV) to determine management plans for public forests is a clear example of measuring the wrong things. Such "precise" calculations give a false appearance of the true state of public forest management, concealing things like the $5.6 billion loss of taxpayer dollars by Forest Service over the last decade from subsidizing of logging sales.20 Even on Oregon forests, most PNV analysis incorporating expenditures shows negative financial benefit! In addition to the direct financial losses, subsidized timber production from public lands results in major losses in the value of timber owned by private woodlot owners.

The use of PNV is an improper tool for management of public timber lands. Its basic concept of ignoring the value of revenues in future years is contrary to the ongoing revenue and economic productivity needs of public ownership. Public agencies cannot accept analysis techniques and subsequent management practices that result in loss of 90% of potential revenues. It is absolutely contrary to the legislative mandate of ODF-managed lands, which requires that ODF "secure the highest permanent usefulness to the whole people of the state."

PNV provides, as shown above, small increases in immediate revenues at the cost of major revenue loss in later years. It assumes interest rates on "investments", when no investments are being made. By starting with the costs associated with a bare acre of land, it assumes replanting costs to be unavoidable. When we look at the alternative of longer rotations, we see those major costs are avoidable. In maximizing immediate rather than total financial return, PNV almost invariably causes timber to be cut before it reaches its maximum cumulative average growth.

Proper assessment of management alternatives requires examination of all revenue sources, associated costs as well as income, and the interaction and effects of management practices of one area on the productivity of other areas. With such assessment, the true value of alternatives such as long rotation forestry become quite clear.

TOM BENDER
38755 Reed Rd.
Nehalem OR 97131 USA
503-268-6294
© December 1994
tbender@nehalemtel.net