Economic feasibility of longer management regimes in the Douglas-fir region

2005·0.83 MB·English

by  Haynes, Richard W

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A
I
A99.9 F7625U
USDA
United States Economic Feasibility of Longer
Department of
Agriculture Management Regimes the
in
Forest Service
Douglas-Fir Region
Pacific Northwest
Research Station —3>
Richard Haynes7
Research Note
PNW-RN-547
February 2005
1
Abstract D
The financial returns associated with extended management regimes have been
the subject ofrecurring debate in the Pacific Northwest. Proponents argue that the
amount and value ofhigher quality timber associated with older trees will offset
the costs associated with longer management regimes. Land managers and owners
express concerns about diminished financial returns depending on the expected
costs ofholding timber for long periods. The increase in average lumber prices for
high-quality timber is insufficient, on average, to offset the costs oflonger manage-
ment regimes. On public land, where ownership continuity is assured and the
requirement forpositive rates ofreturn is less, longer management regimes may
be attractive when they involve thejoint production ofvarious public goods such
as wildlife habitat and scenery.
Keywords: Forest management, economic feasibility, management regimes.
Introduction
The Pacific Northwest (PNW) is considered one ofthe premier regions for forest
management in the United States. For almost a century, intensive forest manage-
ment has supported a forest sectorthat has grown in both size and complexity.
Various forest management regimes have evolved in response to changes in land-
owner objectives, the development ofsilvicultural information (including growth
and yield information), and changes in the utilization patterns ofharvested timber.
Debates about appropriate management regimes have been frequent and often
contentious. Management regimes2 that have longer rotations3 have been the focus
ofrecurring debate. Proponents argue that the amount and value ofhigher quality
1Richard W. Haynes isaresearch forester, Forestry Sciences Laboratory, P.O. Box
OR
3890, Portland, 97208.
2Mostfrequentlytheseregimesaredescribedas includingplanting, stockingcontrol
(often achievedby usingprecommercial thinning), multiplethinnings, andfinal harvest
ofarelativelyhigherqualitymix ofsawlogsassociatedwith oldertrees.
*In some applications thesearereferredtoasextendedrotations.
RESEARCH NOTE PNW-RN-547
timber associated with oldertrees will offset the costs associated with longer
rotations. The revealed choices by landowners and managers (discussed in the next
section) suggest a steady decline in rotation lengths forprivate timberlands. This
suggests that economic benefits associatedwith longerrotations have failedto
materialize.
These arguments have reappearedrecently as part ofdeveloping a new land
managementplan forthe Tillamook State Forest.4 There the Oregon Department of
Forestry is considering alternative forest management prescriptions to protect key
habitats andprocesses in selected areas. Among the alternatives are several that
involve longerrotations that provide greatertimberrevenues over a longertime-
frame than canbe obtained by the short-term high-volume harvest regime currently
in operation.
This paper describes a study done forthe Salmon Anchor Habitat Working
5
Group as backgroundto theirreview ofalternative management strategies forthe
Tillamook State Forest. I review the evolution ofmanagement regimes in the Pacific
Northwest andthen develop three specific management regimes that encompass the
types ofalternatives being considered. I also review the management methods and
some ofthe critical assumptions behind the regimes. Finally, I discuss the implica-
tions for land management and managers.
The interest in growing timber for high-quality purposes by using longerrota-
tions is not unique to the Pacific Northwest. It has been discussed in the context of
plantation management in South Africa (Craib 1948), New Zealand (Sutton 1984,
Whiteside and others 1975), British Columbia (Kellogg 1989), the Pacific Northwest
(Barbour and others 2003), and southeast Alaska (Barbour and others, in press).
The general conclusion ofthis work is that the tradeoffs among rotation length,
timber quality, and financial returns depend on the way in which costs are discount-
ed and whetherthe computations include the value ofamenities associated with
longerrotations.
Evolution of Management Regimes
Speculation continues about the appropriate management regimes in the PNW,
but there has been tentative consensus on the basic set ofpractices that compose
the core ofthe management regimes. Some ofthis discussion dates from the early
TheTillamook StateForest is inthenorthwestcornerofOregon and includesmuch ofthe
areaplantedafteraseriesoffiresbetween 1930and 1945.
5TheSalmonAnchorHabitatWorkingGroupwasconvenedbytheOregon Departmentof
Forestryatthedirection ofthe 2003 Oregon Legislature. Itwasacitizenworkgroupwhose
purpose was toreview how foreststandswith salmon habitatwerebeingmanaged in the
Tillamook State Forest.
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EconomicFeasibilityofLongerManagementRegimesintheDouglas-FirRegion
1960s when the Timber Trends study (USDA FS 1963) identifiedthree management
regimes differentiatedby the array ofpractices in each. The first regime, which
we would now call custodial, represented those owners who operate expecting
high rates ofreturn6 on theirtimber investment andwho prefer little active timber
management. Instead, these are owners who harvest frequently anduse low-cost
regeneration regimes. The secondmanagement regime was called intermediate and
assumedthat landowners operated expecting moderate (6 percent in nominal terms)
rates ofreturn on their investments. Rotation lengths in this regime were assumed
to be shorter (60 years) than with the third management regime. The intermediate
regime was aplant, thin, and harvestregime differing (based on site and owner) in
regeneration methods and the number ofthinnings. The third managementregime
(which we would call intensive) assumed landowners who operated expecting lower
rates ofreturn on their investments andwho would adopt longerrotations (120
years) and more thinnings and other cultural treatments. It included site prepara-
tion, planting, fertilization, precommercial thinning (PCT), commercial thinning
(CT), andfinal harvests. In all three managementregimes, final harvests were as-
sumed to be clearcuts. As private forests in the PNW transitioned from old growth
to second growth, the Timber Trends study assumedthat 16, 22, and 62 percent of
the private land wouldbe assignedto each ofthese management regimes, respec-
tively.
Overthe last 30 years an array ofstudies have examined the timber supply
PNWW
prospects forprivate forest lands in the (Pacific Northwest West, western
Oregon and Washington). In each case, following the lead ofthe Timber Trends
study, efforts were made to identify the range ofmanagement practices appliedto
the currentprivate forest inventory. These studies provide differentperspectives of
managementpractices (ormanagement intentions) at three times: the early 1970s,
the late 1980s, and the late 1990s. A summary ofthese perspectives is shown in
table 1 for seven types ofmanagementregimes (see Haynes and others 2003 for
more details).
In general, industrial owners' management intentions have consistently in-
volvedpractices beyond simply securing regeneration, and usually some form
ofcommercial thinning. The proportion ofthinning has differed overtime, with
some ofthe more recent surveys showing a decline. Practices otherthan commer-
cial thinning also appearto have gained in importance as we move from the earliest
to the most recent study, including precommercial thinning, fertilization, partial
cutting regimes, anduse ofgenetically improvedplanting stock. There has also
Landownersdemandahighrateofreturntocapitalwheninterestratesarehigh. Typically
these landownersdonotholdtimberforlongperiodswithoutfinancialreturns.
3
RESEARCH NOTE PNW-RN-547
—
Table 1 Summary ofprivate timber land base allocation to management regimes from six studies ofthe
Pacific Northwest region
WOR WWA WOR WWA WOR PNWW
Early 1970s Early 1970s Late 1980s Late 1980s Late 1990s Late 1990s
Beuter WaFPS£ Sessions Adams Adams RPA/
Industrial managementregime:
Age (years) 50H,A 25M'A 45-60M'A 50-57H'S 43-55M.S
Percentage oflandbase
Non-Ggregenerate only 43 10 28 25 51 17
Non-Gregenerate+CT^+other 41 80 50 21 25 17
Non-G regenerate + other(Non-CT) 10 13 47 14 12
Partial cut 6 2
Genetic regenerate + other 3 47
Conversion/rehabilitation 16 9
Reserved 4 3 6
Total' 100 100 100 100 100 100
Nonindustrial private
management regime:
H,A M.A M.A M.S M.A
Age (years) 50 45-65 45-60 43-49 40-60
Percentageoflandbase
Non-G regenerate only 62 95 98 61 83
Non-G regenerate + CT + other 3 5 1
Non-G regenerate + other(Non-CT) 1 3 7
Partial cut 33
Genetic regenerate + other 1 10
Conversion/rehabilitation 35
Reserved 3
Total 100 100 100 100 100
Note: WOR=westernOregon,WWA=westernWashington.PNWW=PacificNorthwestWest.Harvest(H)orminimumharvest(M);
ageassumed(A)orestablishedfromsurvey(S).
"Beuterandothers 1976.
WDNR
1975.
Sessions 1991.
^Adamsandothers 1992.
'Adamsandothers2002.
^Haynes2003.
^Non-G=Notgeneticallyimprovedplantingstock.
hCT=Commercial thinning.
'Totalsmaynotaddupbecauseofrounding.
been a decline in intentions to pursue highly complex systems such as the "inten-
sive" regime (plant/PCT/fertilize/CT) in the Timber Trends study. These systems
appear to have been replaced by simpler one- or two-treatment regimes (for exam-
ple, plant/PCT orplant/PCT/fertilize).
On nonindustrial private (NIPF) lands, management is largely limited to secur-
ing regeneration with only limited use ofother treatments. Earlier western Oregon
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EconomicFeasibilityofLongerManagementRegimesin theDouglas-FirRegion
studies made it clearthatNIPF lands were in relatively poor management condition
(low coniferrestocking afterharvest) (Sessions 1991). Recent studies (Adams and
others 2002) show a large fraction ofthe landbase in some form ofpartial cutting
or selection management.
Forpublic lands, management regimes until the early 1990s followed a mix of
the three general managementregimes described earlier. The adoption oftheNorth-
west Forest Plan altered managementregimes on federal timberlands and, where
timberproductions is allowed, changedmanagementto mimic natural successional
processes by usingpartial harvests accomplished through multiple entries. The
state timberlands are still generallymanagedon longerrotations than are private
timberlands and are managed for avariety ofgoals including the production oftim-
ber and environmental services such as habitat andwater quality.
Rotation age, or age ofharvest, is one ofthe most closely scrutinized elements
ofthese timbermanagementregimes. Harvest age affects the rate ofreturnreceived
by the owner onregeneration, tending, and landholding investments; the maximum
volume attainedby the stand; the characteristics ofwildlife habitat affordedby the
stand over its life; andthe timepatterns ofatmospheric carbon uptake and release.
Yet as important as rotation is inboth management decisions and in assessing the
broader social and environmental impacts ofmanagement, relatively little has been
objectively measured about actual harvest agepatterns onprivate lands inthe PNW.
As shown in table 1, six ofthe seven timber supply studies discussed in connec-
tionwith the structure ofmanagement regimes also provide information on antici-
pated or intendedrotation ages. In most cases these are "minimum harvest ages,"
—
the youngest age at which owners would considerharvesting a stand not average
—
anticipated harvest ages andthey commonly differby site, owner, and manage-
mentregime. Forthe mostpart, available estimates were developed from expert
opinion ratherthan surveys ofowners ortheir agents. Withthe exception ofthe Ses-
sions (1991) study, the range ofharvest ages is broadly similar forboth industrial
andnonindustrial ownerships, 40 to 65 years depending on site and regime. The
WW
limited information on the actual harvest age behavior ofowners inthe PN
(Lettman and Campbell 1997) suggests that the area-weighted average harvest age
is 58 years (see Haynes and others 2003 for computation method). The range is
from 20 to more than 90 years, but more than two-thirds ofthe private cut comes
from timberwhose age ranges from 40 to 70 years.
Management Regimes, Assumptions, and Methods
In the shifting discussions about land managementparadigms during the late
1980s and early 1990s, longermanagement regimes were proposedboth as away
5
RESEARCH NOTE PNW-RN-547
to produce higher quality timber (see Barbour and others 2003) and as a way to
produce a broader array ofecosystem goods, services, and conditions, especially
interms ofwildlife habitat. Much ofthis discussion is summarizedby Weigand
and others (1994) who describedthe results from the High Quality Workshop held
in spring 1993. The original proposal was describedby Gus Kuehne (President,
Northwest Independent Forest Manufacturers) in fall 1990 as "High Quality For-
estry (HQF): an alternative formanagement ofNational Forest lands."7The name
HQF came from an emphasis on growing timber with old-growth-like characteris-
tics (large diameter, relatively knot free, and a high number ofrings per inch) that
wouldproduce a high proportion ofShop and Select grades oflumber. The HQF
method called for extended harvest rotation of 150 to 200 years, severely reduc-
ing clearcutting and emphasizing multiple management goals. The HQF method
relied on precommercial thinning, pruning, and commercial thinnings to accom-
modate the needs ofwildlife species and to maintain and improve timberyields.
The intervals between intermediate cuts ranged from 15 to 30 years, depending
on site and terrain. The record ofdecision (UDSA and USDI 1994) implementing
the Forest Ecosystem Management Assessment Team (FEMAT 1993) strategy for
habitat conservation shifted discussions about public land management paradigms
to approaches otherthan longerrotations.
Here I look at the differences between three management regimes. The first
regime is currently employed on 47 percent offorest industry timberlands in
WW
PN (summarized from table 1). It consists ofplanting, PCT (at age 15 years),
fertilization (usually on forest industry timberlands), and final harvest around 45
years. The second regime is one often favored by silviculturists who rely on rota-
tion lengths set by culmination ofmean annual increment, which is around 80 years
for Douglas-fir (Curtis and others 1998). This regime also includes planting. PCT,
and a commercial thinning at about 50 years. This thinning was designed to reduce
stand volumes by one-fifth and to capture for use the expected mortality between
50 and 80 years old. A third management regime was examined that represents
Kuehne's long-rotation proposals. This regime includes planting, PCT, pruning, a
series ofcommercial thinnings (at ages 50, 80, and 120, each designed to reduce
stand volumes by one-fifth and to make use ofdead trees before the next entry), and
final harvest at age 160. The thinning intervals are longer than originally envisioned
by Kuehne because in early analysis ofhis proposals, light frequent thinnings as he
envisioned were not economically feasible (see Weigand 1994). A rotation length of
160 years was chosen to continue the progression ofthe first two regimes.
Hisproposal is includedasan appendix in Weigandand others (1994).
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EconomicFeasibilityofLongerManagementRegimesin theDouglas-FirRegion
The analysis method consisted ofcalculating the soil expectation value which
is the present value ofall future netreturns from apiece ofland growing timber.
Given a rate ofinterest, rotation length, and the value oftimber (or other) prod-
ucts produced, the presentnetworth ofland can be computed. In this case, we are
looking at the present net worth ofa stand grownunderthree rotation lengths each
producing a differentproductmix (in terms ofthe grades oflumberthat can be
produced from the available logs).
This approach depends on several key assumptions. First, all prices and costs
are in real terms (that is they are net ofinflation). There is little expectation forreal
price appreciation in lumber and stumpage markets. Price projections from Haynes
(2003) suggestprice appreciation of0.4 and 0.2 percentperyear overthe next 50
years forthe lumberand stumpage markets. Second, stand volume was computed
byusing an empirical yield function shown in figure 1 forDouglas-fir derived from
USDA Forest Inventory andAnalysis data forwestern Oregon. This represents
o
A3
0)
o
3
c
o
o
c
3
o
Age (years)
—
Figure 1 EmpiricalyieldfunctionforDouglas-firwiththinningsat50, 80, and 120years.
yields forrelatively full stocking observed in actual stands. Actual stand stocking
is between 60 and 65 percent offull stocking onthe industrial and nonindustrial
timberland in western Oregon suggesting that the realizedyields will be less than
shown infigure 1. Third, there are price premiums associated with the intermediate
Thepresentvalueofallfuturenetreturns,thesoilexpectationvalueorSEV, fromasimple
plant-and-harvestmanagementregimecanbeexpressedas:
SEV = Price x(V1o+lIunmteereasttrorattaet)iRoonta-tI;Polna-nt1in-gcost Plantingcost
7
RESEARCH NOTE PNW-RN-547
and intensive regimes reflecting largerproportions ofhigh-grade products resulting
from larger trees with less taper and fewerbranches associated with thinned stands
and longerrotations. Figure 2 illustrates the actual ratios betweenprices forhigh,
medium, and low Douglas-fir lumber grades (see Haynes and Fight 1992, 2004 for
a discussion). Sustained high-grade prices that are three to fourtimes low-grade
lumberprices have influenced the advocates for HQF. Table 2 shows the actual pro-
portions ofDouglas-fir lumberrecoveryby grade groups. This table was developed
from data collected in empirical woodproducts recovery studies (see Stevens and
Barbour 2000).
High/medium
High/low
Medium/low
o
o
~\ i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i r
Year
—
Figure2 Douglas-firpriceratios for gradegroups.
—
Table 2 Proportion of Douglas-fir recovery by grade groups
Factory and Select No. 2 and Utility and
Age class Selects structural better Economy
Years Percent
40 21.1 70.4 8.6
80 2.3 22.3 66.8 8.6
160 7.5 24.7 59.2 8.6
A key assumption that shows differences among the three management alter-
natives is the price projection for mixes ofstumpage coming from different stand
ages. Table 3 shows the average lumberprice per thousand board feet (MBF). It
was developed by combining lumber price projections by grade (from Haynes and
Fight 2004) and the recovery data shown in table 2. The next step converts these
3