The 
 Myth
Basic 
 Principles
Why Do 
 Foresters...
NPV 
 Appraisals
Grade Value 
 Increase Rates
Tree 
 Value
Summary 
 Table
Economics

Forestry Economics

For years I thought that rates of tree value growth were the same as their biological growth rates.  The table below was the standard reference for decades--and still is for many foresters.  Then I started working with a sophisticated computer forest growth and treatment simulation program.  This program could simulate biological growth, plus tree grade improvement and market value changes.  The program asked for estimates of future tree grades and market value changes.  I didn't know how to make these estimates, so I went to the forestry literature to look for more information. 

I quickly learned that trees grow in volume, grade value and market value all at the same time, and that these rates can be estimated fairly accurately.  So how fast do you think your trees are growing in value?  If you've talked to loggers, state extension and service foresters, and even most consultants, you're likely to think they're only growing at 3-5% per year--the biological growth rate.  Below is the table that foresters have used for decades in "promoting" forest management.  Notice that it says "interest rates being grown by trees."

Table of Interest Rates Being Grown by Trees  (Actually Only Basal Area!--KD)

Adapted from Anonymous. 1975. Timber Management Field Book. USDA Forest Service NA-MR-7.

 

Rings per Last Radial Inch

DBH

4

5

6

7

8

9

10

11

12

4"

28.2%

22.5%

18.8%

16.1%

14.1%

12.5%

11.3%

10.2%

9.4%

6"

18.1%

14.5%

12.1%

10.3%

9.1%

8.0%

7.2%

6.5%

6.0%

8"

13.2%

10.6%

8.9%

7.6%

6.7%

5.9%

5.3%

4.8%

4.4%

10"

10.5%

8.4%

7.0%

6.0%

5.3%

4.7%

4.2%

3.8%

3.5%

12"

8.7%

7.0%

5.8%

5.0%

4.4%

3.9%

3.5%

3.2%

2.9%

14"

7.4%

5.9%

4.9%

4.2%

3.7%

3.3%

3.0%

2.7%

2.5%

16"

6.4%

5.2%

4.3%

3.7%

3.2%

2.9%

2.6%

2.3%

2.1%

18"

5.7%

4.6%

3.8%

3.3%

2.9%

2.5%

2.3%

2.1%

1.9%

20"

5.1%

4.1%

3.4%

2.9%

2.5%

2.3%

2.0%

1.9%

1.7%

22"

4.6%

3.7%

3.1%

2.7%

2.3%

2.1%

1.9%

1.7%

1.5%

Most of the papers in this section assume a familiarity with the basic concepts of financial analysis.  For those who want explanations of these concepts, the Profitability Reports page in the Memos section should help.  That page also reviews basic factors in tree value growth.   The Myth page in this section is a good introduction, and it's short.  The Basic Principles page is another good introduction.  Other pages are longer and more technical.  The Summary Table does just that.  It also has links to backup data from little-known US Forest Service research papers.

All of the papers in this section are dedicated to dispelling this myth of low value growth rates that has been propagated for all these years by the state forestry agencies.  Why have they been so reluctant to publish the truth about this important subject?  My theory is that part of the reason is that their jobs depend upon the notion that growing trees isn't very profitable, and therefore needs to be subsidized by government bureaucrats and cost-shares for management practices.  So it's not in their best interest to publicize information that conflicts with this notion.* 

Another factor is that timber companies buy and lease land; they also buy stumpage.  Agents for these companies don't want landowners to be aware of the value of their land and timber.  Some loggers don't want landowners to fully appreciate the value of their timber either.  Timber company agents and loggers have considerable influence with the US Forest Service and the state agencies. 

I call it The Great 3-5% Scam.  While it is true that older stands and stands that have been poorly managed in the past may grow at only 3-5% per year, well-managed stands can grow at up to three times that rate, or 9-15% per year in value, including all associated costs and risks.  Wealthy investors are aware of this information.  The proliferation of forest investment partnerships over the past two decades is dramatic confirmation of this fact.  Still, the information that they have is not available through most of our public forestry agencies.

In fairness, it should be noted that some state forestry extension services have provided accurate information on tree value growth.  Cornell University's Dr Robert Morrow wrote an excellent Conservation Circular on tree value in 1981.  This circular is currently in the process of being updated.  The original was OCR'd for this web site.  See the page entitled Tree Value below.  Mollie Beattie of the University of Vermont wrote a good extension publication on timber investment in 1983 that is still available.

However, of the twenty or so states in the northeastern United States, only four have extension publications that address questions of tree value growth.  Of these, half are confusing and/or misleading.  The lack of good information  is a serious problem not only because it discourages good long-term management, but also because it encourages short-term exploitation and destruction.

Many landowners who are under the impression that their trees are only growing at 3-5% simply conclude that their money would be better invested elsewhere.  They often fall victim to unscrupulous loggers and lumber companies who offer to liquidate their unprofitable investments.  Therefore the Great 3-5% Scam is a direct cause of all the high-grading that takes place in our forests.  It's also a direct cause of all the liquidation sales that take place before people sell their land.  Due to The Scam, real estate markets don't recognize the true value of timber, so landowners sell it before selling their land.

*The recent announcement of an upcoming workshop indicates that this situation may be changing.  Whether this workshop is in any way a response to information on this web site is open to speculation.