Table 1. Rate of growth/Growth factor table. Adapted from Ashley 1989.
Fairly Good Market Value Data
There are some good data on timber market values over the periods between inventory measurements (Dennis 1987, Sendak 1994, Nolley 1994, Luppold and Baumgrass 1995 ).
Even though large year-to-year fluctuations in market prices can occur, sophisticated analysis techniques
can smooth these fluctuations and establish trends over longer periods of time. Trends allow for calculation
of rates of value increase. These rates can be added to the rates of volume increase to more accurately measure tree value growth.
Although real (without inflation) market stumpage values have increased at about 2% per year for the past
200 years (Rose et al 1988), they did not maintain these historical rates during the 1960's and 1970's
(Buongiorno and Hseu 1993). When the rates for some species started to increase at faster rates in the late
1970's and 1980's, most forest researchers were slow to realize that significant changes were taking place.
Now they recognize that high-grade hardwood stumpage values have been increasing at 4-8% per year in real terms.
Although it may be risky to project increasing price trends into the future, it is undeniable that increasing
worldwide demand and decreasing worldwide supply of high grade timber are here to stay--barring some
catastrophic change in demographics. There will always be substitution of other products like plastics and fiber board, but there will always be demand for high grade wood products.
Therefore tree species without `market stoppers` such as difficulty in drying and planing, undistinguished
grain, inherent defect, or inherently small size, should continue to increase in market value into the
foreseeable future. Increases should be at least at the historical rates, and possibly much higher. This is
particularly the case for hardwood species which are currently fashionable in furniture, cabinetry and other products.
Fuzzy Grade Value Data
Most trees increase in grade value (or unit value) as they grow into higher grade categories by virtue of
increasing the amount of quality lumber that can be obtained from logs. On high grade trees without `grade
stoppers` such as seams, cankers, or knots, this grade value increase factor is equal to or greater than volume growth (Godman & Mendel 1978, Davies 1991, Niese et al 1995, Davies 1996).
Most statewide CFI data do not include tree grades. But some university and Forest Service research studies
have used various Forest Service tree and log grading systems (McCay and DeBald 1972, Strong et al 1995,
Reed and Mroz 1997). None of these grading systems have been accepted for general use by industrial or
consulting foresters. They complain that the Forest Service grading systems are too complicated for field use and don't account for the grade value of large, high quality trees.
Another big problem with grade value increase data concerns the probabilities that trees of given species,
diameters, heights, and grades will grow into higher tree grades with time. For unmanaged or poorly managed
forests, these probabilities can be rather low. Several studies have dealt with this rather difficult question
(Trimble 1965, McCay and DeBald 1972, Ernst and Marquis 1979), but only one study has really approached the question in a systematic manner (Yaussey 1993).
This study was motivated by the need to calculate probabilities of grade increase for the Forest Service's
TWIGS computer model of tree growth. TWIGS and the Tennessee Valley Authority's INFORM program are
the only two (out of dozens) of computer programs that have this capability. Yet even the Yaussey study did
not allow for a distinction between managed and unmanaged stands of trees. This is a serious deficiency in
view of the fact that most silvicultural treatments will remove the trees that have lower probabilities for grade value increase, and concentrate growth on trees that do have that capability.
Another recent study has shown that the returns from well-managed stands are enormously higher than
those from unmanaged stands (Niese et al 1995). This study attributed most of the difference to the forester's
ability to distinguish the potential for grade value increase among trees, and to eliminate the ones with the
low potentials. Increases in value due to tree grade increase are at least equal to the rates of volume growth, or 3-5% per year.
Emerging Nonmarket Value Data
Trees and forests produce non-timber values such as outdoor recreation, wildlife habitats, scenic amenities,
watershed protection and biodiversity protection (van Kooten 1995). These values may accrue to
landowners or to the public--or to both, depending upon how landowners control access to their properties.
Because these values generally do not pass through the market, they are very difficult to measure. Contingent valuation questionnaires may be used to estimate nonmarket values by gathering data from
individuals about their willingness to pay for unpriced goods and services under specific conditions, but contingent valuation is a relatively new and controversial methodology.
As it is now, there is no compensation to forest landowners for the nonmarket values that they provide to
society. But there are research efforts underway to determine how much it might cost, for example, to buy
incentive contracts from landowners to manage their forests for old-growth habitats (Lippke and Fretwell
1997). These research efforts also try to estimate the value to the public of such incentive contracts by way
of job creation from early thinning activities and higher tax revenues from higher value products at harvest.
Other recent studies have tried to quantify the value of ecosystem services provided by forests and other
natural systems (Costanza et al 1997). Forest ecosystem services include, in addition to the non-timber
values indicated above, climate regulation, water cycling, soil formation, nutrient cycling, purification of
wastes, carbon fixation and preservation of genetic resources. Landowners don't get paid for providing these
services either, but with better value data in the future, it could happen. Conservation restrictions designed
to maximize these ecosystem services should be eligible for some form of tax deduction.
Psycho-Social Factors
Foresters tend to be a conservative lot. They don't like to promise more than they can produce. Generally
speaking, this as is very good characteristic. But if it causes one to sell oneself and one's clients short, it can
become a liability. There is also the problem of lack of training in financial analysis among foresters. Such
training is necessary to make accurate projections of value increase. Without the necessary analytical skills, foresters will tend to err on the side of caution.
Another factor is that, like all professionals, foresters tend to protect the interests of their employers. They
also like to protect their own careers. In the case of industrial foresters who represent companies that lease
land from private landowners, it is not in their companies' interest to inform landowners how fast their trees
are growing because this information could motivate landowners to demand higher lease payments.
In the case of public service foresters, it is not in their interest to have the general public aware of tree value
growth because the general public could well ask `Why then do we need to subsidize these landowners with
publicly funded forestry services?` This calculation of self interest may not actually take place on a
conscious level among public service foresters, but it probably does influence their thinking in subtle ways.
We all have a lot to learn about nonmarket forest values and ecosystem services. Measuring and accounting
for these values and services will become increasingly important as human populations and environmental
impacts increase. Whether these values will ever show up on the bottom line for forest landowners is
unclear, but it will certainly take much longer if foresters are unaware of the latest developments in this field.
Questions and Possible Answers
Would it be possible for consulting and industrial foresters to agree on simple, practical tree grading systems that would work with all the species and growing conditions that they encounter? Could
comprehensive tables of tree grade increase probabilities be created for different species, site indices, and
management regimes? Could the value of preserving or creating old-growth habitats be calculated for
different forest types? Could the value of ecosystem services be calculated for different forest types?
Could these grading systems and data be incorporated into all computer growth simulation models? Could
forestry schools put more emphasis on teaching students about forest investment analysis and nonmarket values? Could extension service programs do the same for consulting, industrial and public service
foresters?
Of course the answers to all these questions are `Yes.` But what would it actually take to make all these
things happen? It seems that the first two questions would have to be dealt with first. Hopefully the Society
of American Foresters and the Association for Consulting Foresters will develop the needed grading
systems. Hopefully Forest Service researchers will find the time and money to put together the needed grade
increase probability data. Hopefully the same will happen for nonmarket and ecosystem service values.
References
Arner, SL, DA Gansner and TW Birch. 1990. Rate of value change in New England timber stands. USDA Forest Service Research Paper NE-639.
Ashley, BS. 1989. Reference Handbook for Foresters. USDA Forest Service NA-FR-15.
Buongiorno, J and J-S Hseu. 1993. Volume and value growth of hardwood trees in Wisconsin.
Northern Journal of Applied Forestry 10(2):63-69).
Costanza, R, R d'Arge, R de Groot, S Farber, M Grasso, B Hannon, K Limburg, S Naeem, RV O'Neill, J Paruelo,
RG Raskin, P Sutton and M van den Belt. 1997. The value of the world's ecosystem services and natural capital. Nature 387:253-259.
Davies, K. 1991. Forest investment considerations for planning thinnings and harvests. Northern Journal of Applied Forestry 8(3):129-131.
Davies, K. 1996. Toward more accurate growth simulations and appraisals: Using INFORM to project tree grade and market value increases. The Compiler 14(1):18-23.
Dennis, DF. 1987. Rates of value change on uncut forest stands in New Hampshire. Northern Journal of Applied Forestry 4:64-66.
Ernst, RL and DA Marquis. 1979. Tree grade distribution in Allegheny hardwoods. USDA Forest Service Research Note NE-275.
Hseu, J-S and J Buongiorno. 1997. Financial performance of maple-birch stands in Wisconsin: Value growth rate versus equivalent annual income. Northern Journal of Applied Forestry
14(2):59-66.
Lippke, BF and HL Fretwell. 1997. The market incentive for biodiversity. Journal of Forestry 95(1):4-7.
Luppold, WG and JE Baumgrass. 1995. Price trends and relationships for red oak and yellow poplar stumpage, sawlogs and lumber in Ohio: 1975-1993. Northern Journal of Applied Forestry
12(4):168-173.
McCay, RE and PS DeBald. 1972. A probability approach to sawtimber tree-value projections. USDA Forest Service Research Paper NE-254.
Niese, JN, TF Strong and GG Erdmann. 1995. Forty years of alternative management practices in second-growth, pole-size northern hardwoods. II. Economic evaluation.
Canadian Journal of Forest Research 25:1180-1188.
Reed, DD and GD Mroz. 1997. Rate of sawtimber volume and value growth of individual sugar maple trees in
managed, uneven-aged stands in the Lake States. Northern Journal of Applied Forestry 14(2):78-82.
Rose, DW, CR Blum and GJ Brand. 1988. A guide to forestry investment analysis. USDA Forest Service Research paper NC-284.
Sendak, PE. 1994. Northeastern regional timber stumapge prices: 1961-1991. USDA Forest Service Research Paper NE-683.
Strong, TF, GG Erdmann and JN Niese. 1995. Forty years of alternative management practices in second-growth, pole-size northern hardwoods. I. Tree quality development.
Canadian Journal of Forest Research 25:1173-1179.
Trimble, GR Jr. 1965. Improvements in butt-log grade with increase in tree size for six hardwoos species.
USDA Forest Service Research Paper NE-31.
van Kooten, GC. 1995. Can nonmarket values be used as indicators of forest sustainability? Forestry Chronicle 71(6):702-711.
Yaussey, DA. 1993. Method for estimating potential tree-grade distributions for Northeastern forest species. USDA Forest Service Research Paper NE-670.
Karl Davies
November, 1997
