42 



National Resources Committee 



caps any long-life operation, and particularly, of course, 

 an operation with sufficient mature timber to permit 

 the immediate adoption of sustained-yield manage- 

 ment. For purposes of illustration: if two operations 

 are compared, identical in every way except in the 

 quantity of timber owned, that which has but 5 years' 

 supply of timber will pay (at 3 cents per thousand on 

 the standing timber) 15 cents per thousand on the an- 

 nual cut, whDe that which has .50 years' supply will pay 

 $1.50. Yet these two plants must sell their lumber in 

 the same competitive market. 



To offset this, the plant with the longer life may prop- 

 erly charge depreciation on its plant facilities at a lesser 

 rate. It has generally been considered by operators 

 that about 15 to 20 years' supply represents the best 

 compromise. But on such a supply, sustained yield is 

 impossible. 



It may be difficult to prove that the forest resource 

 as a whole is paying more than its just share of taxa- 

 tion, but it is obvious that the distribution of the burden 

 \\'ithin the industry is completely at variance with 

 ability to pay. Since this ability is greatest in the case 

 of rapidly liquidating operators, the present tax system 

 distinctly discourages sustained-yield management and 

 even simpler forms of conservative use. 



Diversity of Ownership 



No amount of pressure can force liquidation at a rate 

 faster than the consuming public will buy the forest 

 products. It has already been shown that a reasonable 

 hypothesis as to future demands indicates that very 

 considerable delays in the process of liquidation are in- 

 evitable. The present worth of the last of the virgin 

 timber to be liquidated is obviously insignificant, and 

 possibly negative. Private owners as a whole have 

 assumed this handicap and can only escape it by letting 

 a substantial part of their holdings revert to public 

 ownership through tax foreclosure. Even this method 

 would be largely ineffective because tax delinquency 

 may merely load taxes more heavily on the timber land 

 which is retained. 



Wiile the rate of liquidation is fixed primarily by the 

 consumer demand rather than by the pressure for liqui- 

 dation, just which owners are to profit, relatively, by 

 fairly prompt liquidation and which are to lose through 

 excessive delay is a problem which defies exact solution. 

 Physical facts exert a strong influence, it is true; inac- 

 cessible timber of low qviality cannot be forced onto 

 the present market with any return to stumpage at all. 

 But there are many borderline cases, and in these cases 

 aggressiveness and operating efficiency may outweigh 

 physical and economic handicaps. Attempted over- 

 production naturally results. 



If the bulk of the forest resource were owned by a 

 single owner, a reasonable solution might be hoped for. 



Actually, it is owned by countless individuals and cor- 

 porations, often in very small lots. The situation 

 differs radically in different parts of the Region, and 

 comprehensive ownership figures are not available. It 

 is known, however, that there are at least half a dozen 

 counties in Oregon and Washington in which over half 

 of the forest land is owned in lots of less than a thousand 

 acres. There are some 25,000 timber owners in Oregon 

 and 15,000 in Wasliington. Even the largest owner- 

 ships throughout the Region are widely scattered. In 

 most of the logical sustained-yield units in the Region, 

 diversity of private ownership results in conflicting 

 interests which are difficult to reconcile. 



Low Returns on Industrial Investment 



The lumlier industry, which is the major forest indus- 

 try of the Region, has not made large profits except 

 those which have already been mentioned as resulting 

 from the rise in stumpage values during the early years 

 of this century. From 1916 to 1933, inclusive, the 

 average profit ratio (ratio of net income to gross in- 

 come) of the lumber industry of the United States was 

 only 62 percent of that of all other manufacturing 

 industries.'' In a single representative year, the lumber 

 industry of the Slates of this Region had a profit ratio 

 which was oidy G2 percent of that of the lumber industry 

 of the Nation as a whole. This indicates that the 

 Region's hnnber industry has been on the average less 

 than 40 percent as profitable as the other manufactming 

 industries of the country. 



Wliile it may be true that the low profits are a direct 

 result of the rush to liquidate and the consequent main- 

 tenance of a buyers' market for lumber, the fact remains 

 that the lumber industry is not in a good immediate 

 financial position to assume the additional burdens that 

 maj^ be necessary in connection with sustained-yield 

 management. In addition, there is small incentive to 

 perpetuate an industrj- which has been no more attrac- 

 tive financially. 



Fortunately, the rapidly developing pulp industry 

 seems to be on a sounder basis. No precise figures are 

 available, but the profit ratio of the allied paper industry 

 has been slightly higher than the average for all manu- 

 facturing industry, and in this advantageous condition 

 the pulp industry seems to share. This industry, then, 

 has greater incentives for self-perpetuation and is in a 

 financial position which facilitates the necessary 

 measures. 



Conflict Between Sustained- 

 Yield Objectives 



It has been seen that the maximum prolongation of 

 the present production can be accomplished only by a 

 considerable migration of the industry within the 



« W. L. Crum, Corporate Earning Power, pp. 327-338; and Corporate Earning Power 

 in the Current Depression, Bu-siness Research Studies No. 10, Harvard Graduate 

 School of Business .\dministration, p. 16. 



