Below-Cost Timber Sales: The Continuing Controversy

Any business that spends more in getting a product to market than it receives through sales will soon find itself filing for bankruptcy. Yet year after year the U.S. Forest Service sells timber from certain national forests at what appears to be a loss: sales receipts do not cover the costs of timber management and harvesting.

"What's going on here?" ask environmental groups and others concerned with the several goods and services represented by the national forests. The question was put directly before the Forest Service in 1984 by Congressman Sidney R. Yates, chairman of the House Appropriation Committee's Subcommittee on Interior and Related Agencies. The Forest Service replied that harvesting timber is only one of many uses of forest land required by the National Forest Management Act and that benefits in addition to timber need to be reckoned for a valid comparison with costs. Not fully satisfied, Congressman Yates requested more detailed information based on an accounting system that would reveal the cost of producing timber alone.

In the ensuing two years, the Forest Service has attempted to develop an appropriate accounting system and has commissioned several outside analyses as well. Independent of the Forest Service effort, the Society of American Foresters took on the problem of calculating net timber costs and benefits; the Wilderness Society, in cooperation with the University of Idaho School of Forestry and Washington State University, sponsored an interdisciplinary conference on the matter; and various other studies have been undertaken. The consensus is that an unequivocal answer to Congressman Yates's inquiry is unlikely, although the issue continues to simmer.

Congressional intent

The questions raised about below-cost timber sales all appear to assume that the federal government's management of timber in the national forests ought to be compared with how private industry would manage the same resource—that is, on a strict dollars-and-cents basis. But the premise may be faulty.

In a 1985 Oregon Law Review article, Charles F. Wilkinson and H. Michael Anderson addressed the legislative history of the marginal timberlands issue, with one focus on Section 6(k) of the National Forest Management Act of 1976. According to these legal scholars, during hearings and markup of the act both the House and Senate considered a strict market (financial) test of the economics of timber management, but accepted instead compromise language that does not require the Forest Service to recover full costs of management from the receipts of timber sales. This was done in recognition of the multiple-use mandate for national forest management and in the belief that land-management activities associated with timber harvest enhance the value of other jointly produced forest outputs.

The U.S. Ninth Circuit Court of Appeals appears to have accepted this interpretation in a case in which the value of the timber made accessible by a proposed road would not cover the cost of building the road. The grounds were that the road would serve purposes other than logging. Thus, one body of respected legal opinion holds that timber sales are not required to meet a strict market-receipt test. But still unexplained are the conditions that must exist to justify selling timber below cost.

If the law is inconclusive and apparently leaves the matter to administrative discretion, can economics offer some assistance? The answer must be conditional. If critics have in mind determining the cost of timber management and harvest when the costs of other multiple-use forest outputs are netted out, the answer is, unanimously and conclusively, it can't be done. Joint multiple-use outputs have common costs, and while from management data it may be possible to glean separable costs by output, the problem of how common costs are to be treated remains. Because allocation of common costs is purely arbitrary, it cannot be used to determine an economically justified full-cost estimate. If tried, the presumed economic criterion will be simply an artifact of a cost-accounting convention.

An alternative is to compare total costs and benefits of several different management prescriptions for an area large enough to encompass multiple-use interactions, including timber management of different intensities. The economic timber management prescription produces the highest present net positive value. This approach could support an economic prescription that includes timber sales with receipts below cost when addressed as a single-purpose management objective, but it will not provide an estimate of how a given timber sale's receipts and costs will compare. It will reveal which, if any, timber management intensity is economic, and this, it seems to me, is the root issue underlying Congressman Yates's interest in investigating below-cost sales.

This approach is recognized to be correct in principle, but it still is difficult to estimate the value of nonmarketed multiple-use benefits, like watersheds and wildlife habitats. Such an estimate is hard enough to determine even when the focus is on the benefit of only one legislatively designated output in one portion of a forest; the time and resources required and the nature of the analysis make its application to an entire forest infeasible under any current circumstance. When for planning purposes the value of nonmarketed resource services must be used, values are obtained in a relatively arbitrary and ad hoc manner. National forest personnel requested to document such values nearly always are unable to do so.

Different values and views

Why is this the case? First, Forest Service personnel involved lack the expertise and resources to do the relevant research and to document the results. But second, it may be that there simply are no net positive multiple-use side effects of timber management significant enough to be measurable.

This possibility deserves thoughtful consideration. The question is an empirical one for which no results from systematic quantitative analysis are available. Some wildlife biologists from state fish and game agencies, and indeed some Forest Service wildlife biologists, argue that further roadbuilding and timbering in the western forests have no positive management benefits for wildlife. Many forest recreation enthusiasts express similar skepticism. Yet land managers cite a great deal of recreation in the national forests under extensive land-management regimes. The truth is difficult to come by in the face of such conflicting anecdotal evidence. Is there some way to reconcile this divergent experience?

One can postulate a relationship between wildland management and multiple-use benefits other than those from timber. Most observers would agree that multiple-use benefits flow from timberland management practices and that for the same forest there may be multiple-use benefits from virtually no management (as in wilderness reservations). In either case, beginning at one position and progressing toward the other, the initially large benefits from managing a small fraction of the forest will nonetheless be characterized by diminishing marginal net benefits. Or to put it somewhat differently, movement in any direction is attended by rising opportunity costs: while the returns may be initially positive, competing opportunities eventually will show better returns for the same investment. Accordingly, while the evidence is persuasive that multiple-use forest land management provides a very large total of benefits, any increase in management in many forests may be attended by marginal opportunity costs that equal or exceed its gross benefits. This hypothesis accommodates both beliefs—that intensive land management creates a large aggregate volume of multiple-use benefits and that an extension of management onto land now without roads may generate no appreciable net benefits.

How can the Forest Service move beyond irreconcilable anecdotal evidence to determine whether the joint results of timber management and harvest will compensate for the difference between timber sale receipts and costs? It is all but certain that the quality of the data required will not be provided by the current level of planning and analysis. And the sort of systematic investigation that would provide more persuasive results has no chance of being funded for routine application in the foreseeable fiscal environment. It does not seem unreasonable, however, to consider a well-designed battery of systematic investigations for one or more pilot forests. Such an effort just might bridge the information gap. With the current planning exercise for the national forests winding down, carefully selected planners and researchers using state-of-the-art analytic and planning models could devote several years to developing a better pool of information on the several multiple-use benefits. And better information, of course, would help resolve the current dispute and be invaluable in forest planning for the future required by the Nation Forest Management Act.