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5.2 Technology impacts on productivity and management choices

Rational selection of a management regime (rotation length, timing and type of intermediate treatments, etc.) should be based on landowner objectives, scientific management principles, and economic analysis. For any management prescription, there may be a range of alternative technologies that vary in objective attainment and cost. The manager must select a system that provides the greatest benefits at the least cost.

An economic analysis to determine the optimal rotation age will include the costs and timing of all management activities and the estimated returns. In the traditional (Faustmann) economic model, increasing harvesting costs extend the economically optimum rotation age. Prestemon and others (2000) analyzed data from the Southern Appalachians of North Carolina and Virginia to determine whether forest management decisions were consistent with economic viability. Results indicated that stand age increases with distance to markets, increasing slope, and decreasing site class. These findings would be expected under the traditional economic model and were observed across all ownership types (NIPF, industry, and government). Similarly, Brown (1990) analyzed harvesting activity on both wet and steep sites in the South. About 10 percent of southern forest sites were classified as adverse, mostly due to slopes over 40 percent. Harvesting rates on difficult sites were one-fifth of those on easily accessible sites. As a result, stands on difficult sites are older and have higher timber volumes. Barlow and others (1998) also found decreasing harvest rates with increasing slope and distance to roads; both factors increase harvesting costs.

While high harvesting costs increase rotation length, high site preparation and establishment costs tend to reduce rotation length. The objective of intensive regeneration practices is to increase survival and growth, leading to economic maturity at an earlier age. The economic consequence is a shorter rotation to recover these costs earlier.

Haight (1993) added consideration of variation in future product prices to the traditional economic model. He based the timing of the final harvest on a comparison of current prices with a calculated reservation price. When prices exceed the reservation price, harvest is indicated. Plantinga (1998) notes that the reservation price model generally leads to longer rotations than the fixed rotation age calculation. Haight modeled a range of site preparation alternatives and found that the moderate treatment (chopping, burning, plant) had a higher expected present value than either an intensive or a natural regeneration option. In addition, this analysis found nearly a 20 percent increase in return due to timing the final harvest based on price expectations.

While an economic analysis may affect the selection of rotation length, in some cases the total costs may render any forest management uneconomical. May and LeDoux (1992) analyzed FIA plot data for Tennessee and estimated harvesting and stumpage prices for timberland. At medium stumpage prices, 51 percent of timberland was estimated to be profitable to harvest. At low stumpage prices, only 72 percent of the total timberland acreage could be economically managed. A similar approach was used in western Virginia (Worthington and others 1996). Under current market conditions, about one-third of the timberland in the study area would be unprofitable to manage.

Technology is being sought to reduce costs of forest operations. Such savings, however, cannot alter land management practices unless they are passed on to the landowner in the form of stumpage price increases. Most cost-saving technology now is being directed to controlling rising operational costs. Stuart and Grace (1999) noted that average logging costs per ton increased 16 percent between 1994 and 1997. During the same period, the Producer Price Index (PPI) for contract logging services only increased 4 percent (Bureau of Labor Statistics 2000b). For the entire decade 1990-2000, the PPI for contract logging increased only 9 percent. Clearly there is significant cost pressure on logging contractors. Costs of some site preparation treatments are also rising faster than inflation. Costs of prescribed fire nearly doubled in the last decade (Dubois and others 2001). Precommercial thinning and mechanical site preparation costs increased 30 percent. Costs for chemical treatments were up 20 percent, and those for hand planting rose 25 percent. Labor costs have increased with rising worker's compensation rates. With these price pressures, much of the technology to reduce costs is focused on maintaining profitability of logging contractors or for controlling wood costs at the receiving mill. Larger skidders and better delimbers are examples of developments to reduce costs through elimination of labor. It is unlikely that these cost savings will be passed back to landowners. The increase in mechanization as an approach to controlling logging costs has also resulted in more highly capitalized systems that derive efficiency from high volume production.