FORESTRY AND THE LUMBERMAN
THE UNDERLYING PRINCIPLES
The lumber industry is undergoing a process of reorganization which
reaches to its very foundations. It is so deep-seated as to be
almost imperceptible from outward evidence, but is of profound
significance to the owner of timber land and to the public.
Hitherto lumbering in the United States has consisted chiefly of
manufacturing and selling. The raw material has occupied no consistent
place in the equation. The value it has had in fixing the price
of the finished product has been merely in its relation to
transportation. Intrinsically it has been accorded no value. This
situation continued just as long as there was practically free
Government timber to be had by opening it up.
It continues now only relatively, however. Transportation must
always remain a great factor; the timber owner is still obliged
temporarily to meet his obligations by means determined under the
old basis. Nevertheless, the moment it became impossible to get
timber to manufacture without assuming the costs of producing,
such as fire protection, taxation and interest, began an era of
inevitable natural regulation. From that time on timber began to
assume a value which, although affected by transportation facilities,
must eventually be fixed chiefly by the cost of growing other timber
to compete with it.
TIMBER IS WORTH THE COST OF GROWING IT
In other words, the value of anything is what it costs to produce
it, whether it is a tree or a box of apples. That we found our
timber orchard growing when we came to this country does not change
this law. It was suspended temporarily while any individual could
profit by the growth produced without cost, but began to operate
again when he could no longer do so. We are now in a transition
period of adjustment. The important thing to remember is that this
will not continue until the entire output has actually borne the
full cost of production, for before then investments in standing
timber will have been regulated by the same influence.
It is true that at present the cost of lumber to the consumer is not
fixed absolutely even by the cost of manufacturing and selling it,
and that on the contrary it fluctuates greatly with the willingness
of the consumer to buy. But this, except within limits, is not a
sound working out of the law of supply and demand. It is an incident
to the unsound basis of production which still prevails. So long
as a very large portion of our standing timber has not cost the
owner much in either price, protection, taxes and interest, some
of it will be put on the market at a low price in order to carry
a milling business through a depressed period, to realize money,
or for other exigency reasons. So may a wheat grower lose money on
one or two years' crops. But if in the long run the world refuses
to pay for wheat what it costs to grow it, wheat will not be grown.
The real question is whether or not the world needs forests enough
to pay for them.
DEMAND WILL CONTINUE
It is evident, from the history of older countries, that it does.
While consumption per capita will undoubtedly decrease, population
is growing. Substitution will be necessary, but will not supplant
wood for a multitude of purposes. Much has been said about the use
of steel, concrete and like materials in building. The building
trades only use 60 per cent of our lumber today, without considering
fuel. It is unlikely that the reduction of this percentage will
very much more than offset the growth in volume of the reduced
percentage due to increased population. Fifty years ago there was
scarcely a lumber user west of the Mississippi river. We know the
settlements, mines, railroads and cities that have developed since
to use lumber. It is a poor Westerner who doubts that the next fifty
years will see a far greater development. _And the Panama Canal
is coming, with the certain result of making our fast-producing
forests able to compete successfully with Eastern and European
forest crops grown with less natural advantage._
Moreover, we now use three and a half times as much wood a year
as our forests produce. _Consequently the demand might even fall
off three and a half times and still consume the product._ And
the forest producing area diminishes constantly. Little as we now
consider the possibilities of food famine, history shows that nations
rapidly increase to the limit of their agricultural production
or beyond, and we must reckon not only on our own increase but
also upon immigration from, and export to, nations whose pressure
upon their production exceeds ours. It is certain that land now
considered too remote, rough and poor for agriculture will be put
to that use. We know that other countries do not to any considerable
extent devote land to forest that will grow food crops at all well.
ADJUSTMENT ONLY QUESTION OF TIME
Consequently it is safe to assume that within reasonable limits
the consumer will be glad to pay the cost of growing timber when he
is obliged to do so. It is also to be expected that the community
will desire to maintain a resource which employs labor, pays taxes,
and conserves stream flow. Therefore, the price of lumber will be
governed, as the price of every staple commodity is governed, by
a cost of production including reasonable profit by those engaged
in the several stages of the process. That it will include the
growing of new timber on a sound, profitable basis is proved by the
history of other countries which have undergone the same regulation.
This, after all, is the strongest argument with which to answer
the skeptic who, on premises and judgment of his own, doubts the
above conclusions. We need not claim greater prophetic ability, but
have only to make the undeniable assertion that hindsight is better
than foresight. Nothing demonstrates economic laws so irrefutably
as experience.
Less than 29 per cent of the land area of the United States is
occupied by forests today, including swamps, burns and much land
which will be devoted to agriculture. Germany, where great economy
of material is practiced, where wooden buildings are far fewer,
where, indeed, the per capita consumption is only a seventh of
ours, keeps _26 per cent_ of her land area under the most expensive
forest management _and finds the profit constantly increasing_. She
is increasing her production and importing heavily from countries
where lumber is cheap, like the United States, yet the net returns
per acre from the forests of Baden rose from $2.38 in 1880 to $5.08
in 1902. This was due hugely, of course, to improvement of management.
In France lands which only fifty years ago could not be sold for
$4 an acre now bring an annual revenue of $3. In 1903 the town
forest of Winterthur, Switzerland, brought net receipts of $11.69
an acre. These are fair examples in countries where the influence
tending toward less use of wood have been working for a very long
time. They show such influences do not result in refusal to pay the
cost of growing all the wood that can be grown. Wood consumption
in European countries is increasing at a rate of from 1-1/2 to 2 per
cent a year. In other words, the consumers are actually willing to
pay for more wood than they have found necessary, and are warranting
the growers in adopting still more expensive methods to increase
the output. Nor has forest growing proved to be possible only by
the State or Government. In Germany 46.5 per cent of the forest
area is owned privately, in Austria 61 per cent, in France 65 per
cent, in Norway 70 per cent. While it is true that the European
private owner has better tax and fire conditions, it must also
be remembered that the value of the land on which he makes the
growing crop yield a good dividend is about ten times as high as
it now is in the United States.
The prospective grower of new timber in the American West can expect
equal profit here at some time. His chief concern is whether its
foreshadowing influences are sufficiently strong at present. To
determine this he must consider the probable attitude of the public
and of the lumbermen themselves.
WHAT IT MEANS TO THE CONSUMER
To the consumer the principles previously outlined mean that the
price of lumber will rise somewhat. Indeed, he must expect that,
regardless of the production factor, for the timber owner cannot
pay taxes, prevent fire, and keep his money tied up, all for a
considerable period, and still sell the material as cheap as he
could before these expenses accrued. It also means that if the
consumer fails to recognize and concede these principles it will
be at his own sacrifice. Too low prices now merely mean too high
prices in the early future, for they will not permit protection,
economy or reforestation. He must eventually, and not far hence,
pay the total cost of production. It is urgently to his interest
not to add to this by preventing production and thus permitting the
owner of the timber already produced to speculate on the approaching
shortage.
The danger of this can be illustrated by a comparison. Suppose
three-quarters of the apple growers of the country, either through
ignorance of the principles of their industry or through shortage
of money with which to pay their debts, should be forced for a
considerable period to accept a price for their crop so low that
after paying current bills they were obliged to neglect their orchards
absolutely, without plowing, fencing or spraying. Suppose further
that the public should also destroy a large portion of the orchards,
as the forests are by fire, and also overtax the land so as to
complete the discouragement. Clearly apples would immediately go
up. A few growers would doubtless escape absolute destruction and
these, as long as their orchards lasted, would demand a price
overbalancing many times the saving the consumer made temporarily
while he was destroying the industry. Everyone concerned would be
worse off than if prices had remained just high enough to maintain
an adequate supply.
It is improbable, however, that the consumer will ever voluntarily
pay more than he has to, even if it is to his ultimate advantage.
The most that can be hoped is that as the public at large comes
to understand the situation, it will not support him in the claim
that injustice is being done by the rises he is forced to meet
as conditions adjust themselves. His reluctance will retard, but
not stop, the progress of good forest management.
STATES WILL TAKE A HAND
On the other hand, it is reasonable to suppose that the people of
the timber-producing states will gradually come to see that their
interest, as well as that of the lumberman, is to be furthered
by placing the industry on a sound basis. Selling more lumber than
they consume, they will not rejoice over low prices any more than
a wheat state does over the fall of wheat because it uses some
flour, but they will be equally unable to exert much stiffening
influence on the price. Consequently they will probably attempt to
sustain the industry by increasing production. But in this attempt
they will consider immediate community advantage first, future
community advantage next, and the lumberman's advantage only as it
is incidental. And such measures as they endorse they are likely
to enforce by law.
We see, then, that two forces are making for the better handling of
our forest resources; the economic necessity of the public and the
business advantage of the owner. Both demand the maximum production.
Obviously, since their aims are identical, each has to gain from
earnest coöperation. Neither can succeed alone, for the owner cannot
go far against hostile laws or sentiment, and the public cannot
accomplish half as much by compulsion as by encouraging the owner.
But the great danger to each lies in mutual distrust, which defers
the establishment of effective coöperation.
LUMBERMAN MUST SHOW GOOD FAITH
The primary and all-important moral which all this points out to
the lumberman is that his position under coming conditions will
be largely what he makes it by his own attitude. With the rapidity
with which he gets into a position where his voice is listened to
as unselfish and authoritative on the conservation subject, will
his influence on the new conditions be measured. Therefore, he
must study the subject. He must be able to support good laws and
oppose bad laws with facts and arguments which will stand scrutiny.
Above all, he must show faith by practicing what he preaches so
far as he is able. He must show conclusively the injustice of the
public suspicion from which he suffers.
Conservative forest management has three essentials: Protection,
utilization and reproduction. The last particularly depends on the
first. The timber owner cannot protect adequately alone. Before he
can expect much public help, however, he must show his willingness
to do his share, for the state will not assume the whole burden.
The progressive members of the industry have shown it already, and
the result is evident in the commencement of the states to help.
Their help will increase in the proportion that private effort
spreads.
Presumably it will be the same with reforestation. With the fire
hazard lessened there will remain the obstacle of overtaxation on
property returning no income with which to meet it. The public
will doubtless soon see that this is bad for the community, but
will hesitate to forego present revenue in order to reap greater
future revenue until convinced that the owner will actually reforest
if given the chance. Even if no actual desire to take advantage
is ascribed, there may be fear that he will make no active effort
to start and protect the second crop, but will merely continue
the course of least expense in the hope that a new forest will
establish itself, with little to lose if it fails. Before he will
receive the encouragement he deserves, he must prove his good faith.
The surest way to do this is to begin actual work now, where he
can without certainty of failure. Unfortunately, this is often
impossible, but he can at least study and experiment so he can
argue convincingly that mutual success will follow reasonable
encouragement.
CIRCUMSTANCES DETERMINE PROFIT
Let us assume, then, that it is best for the lumberman to start the
practice of forestry for the purpose of strengthening his position
and getting the most favorable conditions possible for its general
adoption and continuance. How much does he depend upon success in
this? Obviously, early public favor will hasten and add to the
security of forest growing as a business, but is it absolutely
essential? Do existing conditions and inevitable future conditions,
regardless of public intelligence, furnish premises upon which we
can calculate certain profit in some degree?
This depends upon the circumstances of the individual investor.
Without an expectation of more favorable fire and tax influences,
reforestation cannot be universally recommended as a business
proposition. Many timber owners are not warranted in undertaking
it. Not enough are warranted in doing so to insure the future timber
supply upon which public welfare depends. Nevertheless, there are
conditions under which it is a good investment. It is even probable
that for those who are well situated, the very obstacles which deter
others will be advantageous through reducing competition. _This
fact is of peculiar significance to the public, for if the latter
fails to stimulate reforestation generally it will play directly into
the hands of the few who are independent of encouragement_.
It is customary, in speculating upon the profits of a second timber
crop, to attempt to reduce it to a financial calculation based upon
estimated yield, estimated future values and estimated carrying
charges. These considerations are important, but their importance is
largely in proportion to the financial weakness of the prospective
timber grower. We revert again to the practical certainty that unless
reforestation is general, the exhaustion of virgin timber will be
followed by a shortage, and that the man who has a second crop at that
time can obtain a price which will reimburse his carrying charges
be they high or low. The cost of overcoming present obstacles will
be shifted to the consumer. The possibility of such an investment
is determined largely by ability to maintain a protective system
with economy and to bear the expense of this and of heavy taxation
during the period of no return.
In short, the weakness of the ordinary financial calculation upon
existing conditions is that it attempts to estimate future stumpage
values without knowledge of the true factor which will determine
them. This factor is not the probable rise of existing stumpage
while it continues to exist, but is the extent of the new-grown
supply which will follow it provided existing conditions remain
unchanged. It is inconsistent to figure the cost upon almost prohibitive
present conditions without also recognizing that such conditions, if
continued, will completely change the influences which now determine
the market.
WHO CAN AFFORD TO REFOREST NOW
On the other hand, timber owners have by no means equal opportunity
to take advantage of this fact. The productive capacity of their
land varies, their taxes vary, the extent and location of their
holdings affects the expense of protection against fire, and they
have not the same facilities for financing a long term investment.
It is the balance of these factors that determine their opportunity.
Assuming rate of timber growth to be equal, present fire and tax
conditions classify them in relative advantage about as follows:
1. Owners of large holdings of virgin timber who can meet carrying
charges by occasional sales at a profit over their purchase price,
but will not sell much more than is necessary because all they
can afford to hold is advancing in value. Such owners have more
or less land deforested by fire or their own milling operations,
and will incline to sell only stumpage without land. This land is
not easily realized upon at present, and for the speculative reason
stated, they will continue in business long enough to grow a new
crop on it. The larger their holdings, the greater the certainty of
this and the cheaper, relatively, the cost of protection. Moreover,
concerns dealing with large and long term investments can consider
a lower interest rate.
2. Owners with less facility for making an actual profit through
growing timber, but desiring to maintain a milling business. Even
if the cost of growing approaches or equals the value of the crop,
they will be able to count on continued manufacturing profit.
(Both of the above classes face a possibility of so heavy a tax on
their virgin timber in some instances that they will be obliged to
cut it and go out of business. This is unlikely to occur generally,
however, for tax reform is almost inevitable, and it would have a
compensatory effect of enhancing the value of the second crop.)
3. Owners whose holdings are not large enough to keep them in business
until a second crop matures but are advantageously located. Second
growth need not be mature to have a value. As the present supply
diminishes, available coming supply will gain a high expectation
value which can be realized upon. The profit it offers will be
largely determined by its proximity to market and especially by its
proximity to established mills which see their own supply running
short and have failed, through inability or lack of foresight, to
engage in reforestation themselves. It will also be affected by
tax and fire charges, and the latter, especially, will be largely
a matter of location.
4. The owner with no peculiar advantages, who can only set the
general certainty of a market for second growth against his ability
to carry a costly and uncertain investment for an indeterminate
time.
Of course a first consideration in most cases is the comparative
profits of other possible investments or, in other words, the exact
interest demanded as satisfactory. Individuals are in by no means
the same position in this respect by either inclination, opportunity
or talent. Where one might be safer with his money in timber, another
could make more by manufacturing. Generally speaking, however,
conservative judgment leads to the conclusion that the present
attitude of the public warrants the first of the above four classes
of owners in undertaking inexpensive reforestation where the land
has little sale value for other purposes and where the growth and
fire factors are reasonably favorable. The second class can also
undertake it to advantage on much the same basis, but having less
capacity for meeting the carrying charge, requires still more favorable
conditions. The third class must have the maximum advantage of
every kind. It must calculate closely on the factors of cost and
profit indicated by present conditions. In most cases the risk
will be too great for prudence, and in nearly all financial ability
will be lacking. The fourth class cannot even consider it until
the public's attitude changes.
BETTER DAY FOR ALL IS NEAR
On the other hand, it is reasonable to suppose that publicly-imposed
obstacles will decrease. It will become apparent that their persistence
is bad economy. Fires will grow fewer and the state will aid in
patrol. Reforestation in itself is a method of fire prevention
when it places a green young growth on a fire-inviting tract of
sun-dried litter and weeds. Taxation will be deferred. As the country
develops interest rates will fall; making it easier to carry forest
investments and harder to gain more through other investments. The
state itself will engage more and more in forestry, with the result
of making its principles understood and endorsed. Stumpage values will
increase. Immature timber will have a sale value, lessening the term
of investment. Gradually the business will get on a sound production
basis, better for the consumer, better for the state supported by
a forest income, and more profitable for the grower. Instead of
capitalizing bad management and the sacrifice of the consumer,
which in effect it does now by forcing the prospective grower to
calculate on covering unnecessary cost in the price received, it
will capitalize the earning power of forest land.
While final adjustment on this basis is still in the future, it is
by no means entirely dependent upon popular foresight. The process
is going on constantly, whether we know it or not. The sun is still
behind the horizon, but the day is sure. Many Western timber owners
are still in too dim a light to make their footsteps certain; others
have a high vantage ground where dawn already lights the path.