Forest Resources

1. Forest Resources

2. Why is Forest Mgmt. Difficult? • One, there are multiple uses of forests, like timber, paper, wildlife habitat, maintenance of watersheds, recreation, etc. • Two, multiple uses may conflict with each other; consider the controversy over the spotted owl habitat and clear cutting of Pacific Northwest forests. • Three, trees mature very slowly and therefore they require a long term perspective for utilization of forests. • Four, although trees, plants, herbs, etc. are renewable resources, the forest system can be nonreplenishable if excessively utilized and if there is heavy loss of biodiversity. There are negative external effects, sometimes irreversible, associated with excessive utilization.

3. Ownership categories of forests • Public forest lands: These are forests owned by the government. They include: • National forests managed by the U.S. Forest Service under the USDA • National parks administered by the NPS under the Department of Interior • Forest lands managed by the BLM under the Dept. of Interior, and • State forest lands • Forest industry lands: These are lands owned or leased by businesses engaged in the production of forest products for a profit. • Other private holdings: These are lands associated with activities that are primarily nonforest product related, e.g. skiing.

4. Public Forest Management in the U.S. • Although owned by the government, public forestlands were essentially treated as common property. Only in 1891 came the first piece of legislation — the Forest Services Act of 1891 — to organize the first permanent system of forest reserves. • The management of these reserves was transferred in 1905 to the U.S. Department of Agriculture’s Forest Service.

5. U.S. Public Mgmt. (cont’d) • Only in 1960 the U.S. Congress came with a legislation to manage forests for multiple uses — the Multiple Use-Sustained Yield Act 1960. • The Act directs the U.S. Forest Service to manage national forests for multiple uses and sustained yield of the several products and services obtained from the forests. • It also allows the management to consider patterns of specialization of use rather than attempting all uses everywhere.

6. U.S. Public Mgmt. (cont’d) • In 1964 was enacted the Wilderness Act which set aside specific forests areas to be preserved in their pristine state, prohibiting road construction and timber harvesting in wilderness areas.

7. U.S. Public Mgmt. (cont’d) • Although public forest management has gone through a long evolutionary process in the U.S., it has not yet reached a stage of efficiently utilizing forest resources. • Harvests from the public forests are subsidized by the taxpayers • Wildlife and recreational benefits are not adequately protected • Too many political pressures influence utilization of public forests. • In this class, we learn few methods of allocating forest resources. We will first focus on the timber use of forest and later attempt to expand the theory to include other uses.

8. Biological model of timber growth • Any timber-harvesting plan must consider the nature of biological growth of trees. A plant generally grows very slowly initially, it starts growing faster after a period, and a period comes when the growth slows down and matures. The textbook presents an example of Douglas Fir, mostly found in the Pacific Northwest. • The first two columns of Table 12.1 describe the growth of volume of wood in a Douglas Fir tree. If these numbers are plotted, they look like S. • Note that the growth process is pretty long. It more or less stops growing only after 135 years (actual growth is influenced by many factors besides age). • If you harvest in 10th year, you get only 694 cuft of wood from a Doug Fir tree. If you wait until 135 years, you can harvest 22,514 cuft. • When should you harvest?

9. Mean annual increment rule of harvesting • A traditional forestry rule is the mean annual increment, or MAI, rule of harvesting. This rule looks at the biological growth of tree and recommends harvesting in the year when you get the maximum average yield of wood (i.e., maximum MAI). • The question is "is this an efficient utilization?“ • Perhaps not, because the rule does not fully evaluate the benefits and costs associated with harvesting and it does not necessarily maximize total net benefits. • Therefore, we need economic models of efficient harvesting of trees for timber. Initially, we will assume there are no other uses of forests.

10. One-time harvesting model (Basic Model) • Let us assume: • Only one time harvesting of trees (there is no replanting of trees, or rotation of harvesting cycle, the land would be left as it is after harvesting of trees), • A fixed price of timber in all years (say, P = $1 per cuft), • Planting costs incurred in year 0 only (say, k=$1,000 per tree), • Harvesting costs incurred at the time of harvesting (say, h=$0.30 per cuft), and • There are no other costs.

11. One-time Harvest • The objective is to choose t, the year of harvesting, so as to maximize the present value of total net benefits from V(t) volume of wood available in that year. See Ch 12 appendix, p. 285. • The expression (P-Ck)*V(t) is called the stumpage value. It is basically the value of the volume of wood, net of cost of harvesting. You get more wood, or the stumpage value, by waiting, but you lose in terms of present value. How long you should wait depends on the discount rate and the rate of growth of the tree.

12. One-time Harvest • If the stumpage value grows faster than the discount rate, you may like to wait. A rational decision-maker compares the marginal benefit of waiting a year with the marginal cost of waiting a year. • You can also look at this problem as a trade-off between (i) harvest now and invest the proceeds for a year and (ii) wait for the tree to grow one more year before harvesting.

13. One-time Harvest • Summary: The rule is to choose the year when the NPV is maximum. • When planting costs are fixed, it is equivalent to choosing the year when the stumpage value is maximum. • When r increases, harvesting period shortens. Too high r can make replanting unprofitable. • Replanting costs, harvesting costs, severance tax on harvesting, or increase in fixed prices do not change the harvesting period, because they are independent of harvesting period. These factors can, however, change the profitability of replanting. • An increase in price over time will prolong the harvesting period.

14. The Multi-harvest Model • Let us examine the effects of changes in parameters on harvesting cycle. • When r increases, rotation period decreases… the result is the same as the one-time model. • When planting costs increases in future rotations, rotation period increases. The site expectational value has decreased, since benefits of replantation have gone down. This is different from the one-time model. • When the net price of timber (i.e., P – c) increases, the optimal rotation length decreases (generally). This is different from the one-time model. • For similar reasons, severance taxes change the optimal rotation length.

15. Sources of Inefficiency • Inadequate representation of benefits of nonmarket services • Problems related to timber management • Economy of scale versus small forest land holdings • Imposition of external costs on private holdings • Global impact of deforestation • Lax public forest management and inappropriate policies