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May 16, 2005
Economics in the Woods
Oregon is faced with a devilish choice: cut badly-needed funding for schools or continue cutting forests too quickly and forget about protecting wildlife? Here's the back story...
Two years ago, Oregon's legislature told the state's Department of Forestry (ODF) to raise the cut rate on state lands, the better to boost revenues in an era of budget shortfalls. (In Oregon, as in Washington, timber sales on state lands go to pay for schools and a few other state-funded projects.) The good news is, the plan worked--more money rolled in to government coffers.
The bad news is, the plan worked--cutting on state forests boomed. Actually, it boomed to much, according to a new report released by ODF. As the Oregonian puts it, "cutting is about 30 percent more than the forests can sustain if they are to bolster populations of salmon, elk, spotted owls and other species."
Oregon's predicament is especially frustrating because of the perverse incentives attached to logging state lands. In Washington, which has a similar problem, the incentives are actually connected to the state constitution, making it very difficult to extricate gutting our natural heritage from paying for our children's future. I believe Oregon's laws function the same way.
There may, however, be a fix: FSC certification for state forests. (And yes, I realize that I sound like a broken record on this issue.) It's very possible that green certified wood can command higher market prices. (Oregon's recent foray into sustainable certification doesn't count--it's only a smokescreen. As is Washington's.)
On the other hand, the upshot of FSC labeling could very well be less logging, but more money per board foot. Plus, there is a whole array of other benefits. We just need to prove it.
What we need is an economic study to prove that the FSC label can actually increase revenues. We need a full-cost accounting that weighs the benefits against the initial costs of certification. The only one I know of, performed by ECONorthwest, is helpful but not extensive enough to prove the point.
So if anyone out there happens to be an economist with a heap of free time on your hands...
Posted by Eric de Place | Permalink
Comments
Well, Eric, I don't fit either of those criteria -- not an economist, and nix on the free time, besides. But I have looked into the practical economic benefit of certification, and I'm sorry to say that the results were less than encouraging. I doubt it's the best hook on which to hang the case for certification.
My most recent article on the topic appeared in Tidepool.org (now in the midst of its spring funding drive, by the way), where I summarized the trajectory of expectations this way:
>In the early to mid-'90s, certifiers estimated that wood they blessed would garner a 5 to 10 percent price advantage.
>But as certification matured, it turned out that demand would not come from end consumers, but from large retailers and manufacturers such as Home Depot and Ikea. That meant that a price premium for certified wood was unlikely. "Big purchasers of wood express a preference, but they won't pay a premium," said [Robert] Hrubes [who runs the forest certification division of SCS, an FSC-accredited certifier based in California].
>The new premise, then, was that certification would win access to new markets for forest managers who got the green label. This worked fine for small companies...
>But this logic doesn't hold for the larger timber companies -- the International Papers and Georgia-Pacifics of the world. Between them, the world's five biggest forest firms mill more than 20 percent of the world's industrial wood, and the top 50 companies account for nearly half, according to a 2001 report by the World Wildlife Fund. By contrast, the top 50 consuming companies between them account for just 10 percent of demand.
>As a result, "Home Depot's preference won't carry the day for the big vendors," said Hrubes. "They can tell Home Depot, 'Forget it. We're not going to engage in FSC. If you don't want to buy our plywood, you can get it somewhere else.'"
>But in regions such as the Southeast where the big industrial players dominate the market, there is no "somewhere else."
(http://www.tidepool.org/original_content.cfm?articleid=88059 for those who want to read the full story.)
Maybe things have changed in the three years since that story appeared. But here's another alarming trend (for which I have only anecdotal, not published, evidence): the stumpage value of larger-diameter trees has been declining compared to smaller trees -- counter to previously prevailing trends, which accorded a premium to older, larger trees with more clear (knot-free) wood. This is bad for FSC-style management, which lets trees grow longer than the standard industrial practice.
Here's why relative prices are off: as mills modernized, many installed headrigs that accommodate logs no bigger than 28 or 30 inches in diameter. Few mills remain with capacity for bigger logs. Thus, large logs are more likely to have to be trucked long distances to be milled. Since stumpage is what's left over after logging and trucking costs are subtracted from the price at the millyard, high trucking costs mean low stumpage rates. What's more, the premium that big logs used to claim for being able to yield big beams and clear veneers has evaporated as the industry has shifted to engineered wood products: oriented strand board instead of plywood, trusses to replace beams, and composite I-beams to replace joists.
Forgive the long posting.
The gist: FSC certification has a lot of benefits (e.g., public assurance of environmentally sound management, outside consulting to help a company or agency improve its practices), but earning higher stumpage is not one of them, at least not to any significant degree.
Posted by: Seth Zuckerman | May 16, 2005 9:10:27 PM