American Economic Constraint on Good Forestry Practice

Kolter O.  Kalberg

America can not apply conventional financial investment and accounting principles to sustained silviculture practices. First, formulas and theories created for society’s economic market have no consideration of nature’s functions. Next, forestry’s financial decisions can not be based on projected economic return and fanatical consumer trends, as are those in other investment situations. Last, good forestry practices in producing the highest value of product with the minimal acreage needed is unrealistic given time value functions presently used for the rate of return.

A tree is a long lived creature, and is nowhere near maturity before it is cut. A larger well tended tree can produce a hefty multiple of the value we are deriving from the relatively small diameter trees harvested today. It does not make sense to sell a stock that is knowingly going to triple over the next few years. Do to the time variation of a long term investment and the period of time a healthy tree continues to grow, trees are prematurely harvested before they attain significant value. Under this time scale it does not pay to maintain a highest quality tree crop because the investment does not have time to fully appreciate.

Incremental or intensive silviculture “refers to the treatments carried out to maintain or increase the yield and value of forest stands; includes treatments such as site rehabilitation, conifer release, spacing, pruning, and fertilization.” (Ministry of Forestry). The cost of intensive silviculture is added to the cost of initial planting of the crop. The present economic return in this practice formulates the future value cost of return to be less then that of the investment. In economic terms this projection is called discount earnings, which is “the value of a business based upon the present value of projected future earnings, discounted by the required rate of return (capitalization rate)” (VentureLine).

For example, if you have a piece of land worth X dollars and Y dollars you want to invest over the long term, 10-25 years. You have the option of selling the land and investing X and Y in the stock market at a low risk interest rate of 10%. Your other option is to plant trees on your land under about the same risks and project your investment using present timber values of different species. You would want to minimize your costs and maximize your returns so you find that if you plant a high value timber species you will receive Y at an interest of more then 10% plus the value of X with appreciation. You are a good investor but a bad forester. You counted on the highest paying species to grow well on your land and become the grade of tree you desired when you did your calculations. Even if the trees grow the way you planned there is still the risk that the species you planned for is worth a lot less at the time of harvest.

As an investor, the first question is what will be my return of investment in relation to, first, the initial cost and future installments, rated interest for time of return, and second, to the return of other available investments. Investors rely on market trends to foresee a good investment, but dealing with the harvest rotations of most trees, the time of investment is much too long to fallow market trends. This can be an impractical and potentially harmful ideology to developing valuable tree stands. Neither set investment periods nor present market values have significance in the way nature functions and our ability to produce product from it.

Foresters should be careful to recognize the long-term needs of the forest and the soil and the long-term opportunities, not just the top dollar. It must be realized that timber values cycle and that we can only guess at timber values down the road, 30 to 100 years in the future. We should seek to improve the quality of all trees, large and small by careful selection of tree characteristics (Smith, 1988).

In this way, caring for the trees and the land should be based on silvicultural theory and good forestry practices, with the goal of a high-quality timber product, maximizing value will minimize the amount of land harmed. The stand should be harvested after the apex of maximum growth accrues not at the financial terms of the investment. Trees should be managed for the site not for their market value. If done properly, this approach is ideal and the economic value curve will meet the change and the capitalization rate will appreciate to equalize a worthy investment.


Works Cited


Ministry of Forestry. 2001. Glossary of Forestry Terms. Province of British Columbia.

Smith, Walton R. 1988. The Fallacy of Preferred Species. Southern Journal of Applied Forestry, Vol. 12 No. 2.

VentureLine. 2006. MBA Glossary. The Web's Most Complete Accounting Dictionary-Accounting Glossary of Accounting Terms.