394 



Forest Service methods of valuing Tongass timber 2 contra- 

 dict conventional economic theory of supply. Normally timber 

 owners would supply less timber when prices fall and more timber 

 when prices rise. The data set used to develop the Tongass 

 timber values show just the opposite relationship. For example, 

 information supporting the AMS suggests that prices could fall 

 as much as 60 percent, while the timber industry would harvest 

 50 percent more timber. 3 



Defenders of the Forest Service timber values are quick to 

 point out that the values were developed using actual informa- 

 tion collected from timber firms that have continued to operate 

 even when the pond log values suggest that it should have been 

 uneconomic to do so. In actuality, many timber operators were 

 forced out of business during the last decade due to an inade- 

 quate profit margin. 4 



The remaining timber industry is dominated by the two pulp 

 mills, which are heavily subsidized through long-term timber 

 sale contracts. 5 Contract provisions have allowed the contract 

 holders to pay substantially less than fair market prices for 

 Tongass timber. On average, the long-term contract holders have 

 paid about $40 per thousand board feet less than that paid by 

 independent operators for short-term, competitive timber sales. 



The Forest Service derives its values for Tongass timber by beginning with a figure called a pond log 

 value. Pond log values are derived by subtracting a mill's manufacturing costs from the end-product 

 selling values for pulp and lumber products. Under the Tongass method, pond log values over a 10 year 

 period are ranked according to ascending value, regardless of chronological order. The volume of timber 

 that corresponds with each pond log value is also recorded. Forest Service then compiles data starting 

 with the volume for the lowest pond log value and adding the succeeding volumes until a volume equal to 

 half the entire volume sold over the decade is reached. The pond log value that corresponds with the half 

 way point in the volume, called the mid-market value, is accepted as the representative timber value for 

 the decade. 



3 Due to the extreme volatility of Tongasa timber price*, even a weighted average stumpag* price based 

 on timber volume cut would not be an appropriate value to evaluate the Tongas* timber program. This can 

 be seen in the pond log values from 197V to 1988 which range from J67.80 to $422.32 per thousand board 

 feet <in 1985 constant dollars). A plan based on average value does not represent these types of extreme 

 fluctuations, which can be expected in the future. 



4 See USOA-Forest Service, 1986, Statu* of the Tongass National Forest, 1985 Report, Alaska Region, 

 Administrative Document Number 153, Chapter 4, Status of the Tongass Small Business Timber Sales Program. 



5 In addition to the 100 small independent operators driven out of the Tongass timber business by the two 

 long-term contract holders, the federal government haa been short changed by the monopoly of the contract 

 holders. Evidence in the Reid Brothers antitrust suit showed that the long-term contract holders used 

 subterfuge in their recorded business transactions with the intent to prevent the Forest Service from 

 increasing timber prices to a fair market value. The Forest Service has estimated the losses in federal 

 timber receipts were 160 to 180 million dollars between the 1950s and 1975. The amount ultimately 

 collected was less than SI million dollar*. 



