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Title: Accomplishments and economic evaluations of the Forestry Incentives Program: A review
Author(s): Gaddis, Deborah A.; New, Barry D.; Cubbage, Fredrick W.; Abt, Robert C.; Moulton, Robert J.
Date: 1995
Source: Southeastern Center for Forest Economics Research Working Paper No. 78
Description: The Forestry Incentives Program (FIP) is a federal financial cost-share program that is intended to increase the nation's timber supply by increasing tree planting and timber stand improvement on nonindustrial private forest lands. Timber harvest reductions on public lands in the West, environmental constraints on private lands throughout the U.S., and increased demands for wood fiber continue to prompt concerns about the nation's timber supply. In the 1990 farm bill, sunset provisions were added that would replace FIP with the broader-purpose Stewardship Incentive Program (SIP) by December 31, 1995. This review examines the program accomplishments and economic evaluations of FIP in order to consider the merits of its renewal or incorporation in related federal forestry legislation. Accomplishments- From its inception in 1974 through 1994, FIP cost-shares of more than $200 million have funded approximately 3.32 million acres of tree planting, 1.45 million acres of timber stand improvement, and 0.27 million acres of site preparation for natural regeneration on the nation's nonindustrial private forest lands. As of 1992, about 73% of the total area of FIP accomplishments occurred in the South, 22% in the Northeast and North Central region, 3% in the Pacific Northwest, and the balance was distributed throughout the country. The South accounted for 90% of the program's tree planting activity, with 10 southern states each planting more than 178,000 acres of trees since 1974. In addition, Oregon and Washington combined planted about 90,000 acres of trees under the program. Timber stand improvement (tsi) practices were distributed throughout most forested states, with 55% in the Northeast and North Central states, and 38% in the South. Arkansas led the nation in tsi, followed by the Midwest states of West Virginia, Missouri, Ohio, and Indiana. Tree planting cost share expenditures and area treated were greatest in the early 1980s, with more than 200,000 acres planted per year. Recent years have had planting rates of 150,000 to 175,000 acres annually. Tsi cost-share finding and acres treated were greatest in the initial years of the program, and range from about 30,000 to 40,000 acres annually in the last decade. Average government payments per acre for FIP activities increased throughout the 1970s when 75% cost-share rates prevailed. They decreased markedly in the early 1980s as most states changed to a 50% cost-share payment rate. They have increased since then, as inflation has increased treatment costs, decreasing the real FIP appropriations. Secondary impacts of the program have included development of private contracting vendors, increased softwood shares of regional timber supply, and sustaining forest products manufacturing firms. Economic Impacts- The Forestry Incentives Program was enacted in 1973 to increase the timber supply in the United States. Evaluations of the program indicate that it has been successful and efficient in meeting this objective. Ninety percent of the funds allocated to FIP actually go toward performing practices in the field because the federal and state agencies administer the program as part of their overall responsibility. Timber supply was projected to increase by more than 1 billion cubic feet each year due to the program. Public and private rates of return averaged about 10% for the various public and private accounting criteria, and program benefit-cost ratios consistently exceeded 1.0 by a substantial margin. Federal income taxes on the timber harvests stemming from FIP plantings would eventually be more than double the annual federal FIP expenditures. Some studies found that FIP could create social welfare losses by public intervention, which is consistent with economic theory. The possibility of public funding substituting for private funding (capital substitution) has been examined by several researchers, but only one study found any measurable impacts. Studies of the 1974 FIP program and 1979 program found substantial increases in softwood timber supply attributable to FIP, and reasonable public and private rates of return for most practices. Other studies have consistently found that FIP contributes to increased forest regeneration on nonindustrial private forest lands, thus increasing timber supplies. Retention rates for FIP have exceeded 92% for the duration of the program. FIP participation has been the greatest in the South, although almost every state has had some activity. Forest landowners who tend to have above average incomes benefit from the program, but expenditures also accrue to small business contractors and vendors, and occur in generally poor counties. Econometric models indicate that increased FIP funding was statistically significant in contributing to tree planting, accounting for perhaps up to 70% of the activity on nonindustrial private forest land that took place in the 1970s. They also found that increased FIP cost share rates would significantly increase tree planting activity, at up to 40% more than the base-level activity in the South. Overall, the accomplishments of the program and the economic evaluations of its activity indicate that it has been successful at increasing forest planting and improvement practices and is economically efficient. It has increased timber supplies and has provided acceptable financial returns for both the public and for private forest landowners who participate in the program.
Key Words: FIP, incentive program, policy
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