Spring 2003 Volume 12, Number 1
SELLING WATER IN THE DESERT
by Sam Bond, C.F., 1990 Logger of the Year
What is a commodity worth when you have to have it to survival. How does the
availability of a resource effect it's price? And finally, how do
marketing techniques and extraction methods affect the long term viability of
the resource?
If we are selling water in a desert to thirsty patrons we can let the thirsty
patrons determine the price by bidding on our water. The high bidder would get
the water. But what if the sale agreement stipulates that our water buyer is the
one who is in charge of pumping our well? Will he pump it too fast and maybe
ruin the aquifer or will he do the responsible thing and manage it as we would
want him to do? Are there any economic incentives we would be willing to give
our water buyer to pump our well in a judicious manner and thereby preserve our
water resource?
THE PROBLEM
Under the current model of marketing stumpage, the timber owner is n a similar position as the owner of the water well. The owner markets timber in a bid setting and then anticipates that the high bidder will harvest the selected trees in a manner consistent with the owner's objectives. Some loggers will and some won't and because of the variable nature of different stands, judging a good job from a poor job can be pretty subjective. With a bid sale, the owner may receive more at the time of sale but what is the owner's total net gain when the after harvest value of the residual stand is added with the sale price? I am not advocating abandoning the bid sale process but am only saying it needs to be examined to look for improvements or as in the example, to keep the resource from being 'pumped out'. It is certainly in the best interests of landowners, resource managers and the forest industry that the resource be managed in a sustainable fashion.
Surveys of landowners have shown that the majority of management activities are done with an expectation of eventual financial return. It is also true that most individuals engaged in the forest industry anticipate a financial return (at least that is what they tell the bank). Should we not look to this area of motivation as a tool to help solve certain problems in the management of this resource?
Competitive pressures in the market are often the reason for poor quality harvesting. To stay in business and pay more than the competition a buyer will need to either market his logs better and/or harvest more efficiently. For many, harvesting efficiency is the some as speed. Time translates to money. In a given stand, as the damage to the residual stand is decreased the cost of harvesting tends to go up.
Examples would be: smaller but less cost efficient machines often do less damage, skilled fellers and equipment operators are more expensive and time lost due to poor weather can make a marginal job become a loser.
THE LEVEL PLAYING FIELD
One of the reasons that the sealed bid method is so accepted is that the seller is able to easily determine which buyer to sell to based on the price offered for the same trees, a level playing field. But this playing field only looks level from a distance. If I were back farming and I asked farmer Brown and farmer Smith to give me a price on picking my corn I could determine from price alone which to choose, Brown or Smith. Maybe Smith might have a newer combine and do a slightly better job but because I have no residual stand to worry about the price will most likely determine who will be in my fields this fall. Not so with our trees.
A residual crop of timber can often be worth more than the trees which are
being sold. This fact sets stumpage sales apart from many other commodity
transactions. The buyer is not only buying a commodity but is also selling a
level of service in the transaction. At this point, the playing field starts to
get bumpy or maybe even rutted. Timber sale contracts and skilled supervision of
those some contracts can smooth some inequities in harvest performance but not
all. I speak from some years of experience on both sides of this equation and
know that when Paul Bunyan goes to choose players for his logging team in Heaven
there will be some left on the sidelines.
MORE BUMPS IN THE LEVEL FIELD
Stable markets make for stable participants in those markets. Stable
businesses tend to do a better job as they may have more experience and can
financially look at each business transaction in the light of a
longer time frame. Tree rotations have fairly long time frames. Based on field
experience, I have found that the better logging jobs are done by companies that
are economically sound. These type logging companies will tend to be able to
provide the nuances in harvest techniques that make for a good harvest instead
of a mediocre or poor one. For example, if a company is financially sound it
will be more likely to hold off working on days when conditions are marginal
than a company that may be worried about making payroll and payments. The stable
company often has less personnel turnover leading to a more experienced crew.
And finally, these type of companies generally have better equipment leading to
less breakdowns which allow them to capitalize on the good working days
available. Would it not be in the best interest of our resource to have more
sound logging companies? If a company is penalized financially for doing a good
job how long will that company be able to be competitive at bid openings? Our
current market model may be molding loggers to the lowest common denominator.
WHAT THE MARKET GIVETH THE MARKET TAKETH AWAY
The bid sale process evolved as a way for a landowner to foster competition in
the sale of similar trees. The competition part is working but the tendency is
for price to be the sole deciding factor. In fact, the bid sole process now puts
a purchaser in the untenable situation of paying the most but being required to
do the best job. This method of application does not reward those loggers who do
good work. Today at a sale there occurs a moment of doubt (for the buyer) after
being informed that he was the successful bidder. The realization that he has
just paid more than anyone else was willing or able to leads to the next thought
which is to get the trees out quick and go on to another job that may hold a
better chance for a profit. This is not a conducive situation for having a good
harvest.
Remember that the true test of profit and loss requires that all the debits
and credits be calculated. If a stand receives rough treatment during the
harvest this damage needs to be balanced against the sale proceeds. In 1994, 1
was asked to speak at the S.A.F. summer meeting on the topic of 'Who pays for
B.M.P.s?' My answer is the same today as it was then, the logger pays for
them. If we are to have sustainable forestry in Indiana we must strive for a
market model that rewards the logger who practices good harvest techniques.
There needs to be same method where the landowner can receive a fair price and
have the logger afford to make the necessary effort to do that good harvest. How
to do this is the $64 question I am asking.
""WELL DONE IS BETTER THAN WELL SAID"'
The fact that price has become the determining factor in whom to sell timber to has created what might be politely termed 'bid sale syndrome'. In days of old a buyer would cruise a stand of timber, estimate the quality, figure the work bill, examine his markets and then arrive at an offer. Today at a bid sale the question of what a group of trees is worth must be examined a step further as to what they will go for at the sale. This is a study unto itself but primarily it makes for a situation of doing a better job.
STILL SEARCHING AFTER ALL THESE YEARS
Finding answers to the questions I have posed may turn out like my personal search for that elusive giant walnut tree. I may end up having to be satisfied with a tree not so large and with imperfect market solutions. There are however, some actions we could examine which may lead in the right direction.
1. Indiana has one of the best logger training programs in the U.S. The program has trained may of the loggers who now harvest our State's timber. This program is essential if the resource is to be there in the future. Expansion of the training to include more refresher classes will keep the lessons learned current. One suggestion was for an annual class held in conjunction with the I.F.I.C. annual meeting. Landowners can now avail themselves of similar training. This would be useful for the landowner's needs and would also provide a better understanding of the harvest process.
2. Loggers need to work towards consistently putting into practice those
lessons learned both in the training sessions and through experience on the job.
It does little good to acknowledge good management practices if they are not put
in use.
3. Loggers also need to consider the cost of good harvest practices through
simple time studies so that a working knowledge of all logging costs can be
known. These numbers should be as well known as how long it takes to turn a load
of logs to a particular mill. Time should be allocated during a harvest to work
on skid trails and build water bars and not as the last thing done before
leaving for the next job.
4. The Directory of Professional Loggers published by I.F.W.O.A. is a listing of
loggers which includes what types of training they have had along with the areas
the loggers work in. The Directory will be useful in helping landowners and
managers to decide who will be given the opportunity of harvesting the timber.
As this Directory becomes more widely known, the benefits to being listed as a
company that has gone through training should exhibit itself in the market. This
may stimulate the training program by being able to list the training as an
accomplishment in the Directory.
5. As landowners continue to be better educated about the management of their
forest resource they will and should continue to look to professionals to supply
advice. The advice should not just end at choosing which trees to harvest and
which trees to grow but the harvest process itself needs to be included. This
requires that those who are managing the resource be familiar with harvesting
trees. A stand of timber which is marked without adequate consideration for the
execution of the harvest can lead to problems. Professional resource managers
need to take every opportunity to learn all of the aspects of harvesting timber.
If supervision of a harvest is part of the bid sale process then that
supervision should come from someone knowledgeable of the process. Check lists
should be used by the managers to insure that the appropriate harvest questions
are asked and answered by both the landowner and the logger. The landowner needs
to be advised by the manager about harvest procedures so that they are in the
decision loop and have an under-standing of what will take place. Much of this
landowner dialog needs to be done before any trees are marked.
6. If landowners are to be selective about which logger to chose then they also
need to be selective about who they hire to manage their woods. They need to
seek out qualified foresters and find out what steps the forester plans to use
to make the harvest successful. Anyone can put point on trees and some can even
scale them but the forester that the landowner chooses needs to be the one who
will convert the landowner's objectives into practice using the scientific
principles of forest management.
7. 'The right to refuse any and all bids'. This phrase, included in most timber sale notices has come to mean, 'if the top bid isn't high enough, we won't sell'. The part about any has become like our appendix, it's there but we don't use it. What if this word were actually employed? Could this be the line in the sand that needs to be drawn? Like Paul Bunyan and his 'Heavenly' logging team, the landowner needs to be equally selective when choosing the 'team' that is going to harvest his or her timber.
8. Landowners need to specify to their advisors what their management objectives are and that the health of the residual stand is as important as the selling price. If management objectives become more balanced, i.e. not just the money, then the success of a sale can be determined by more than the price per board foot received for the marked trees.
9. Timber harvest specifications should be advertised beyond the common,
'B.M.P.s are required' statement. If there are limitations or restrictions
on a site then those considerations should be noted before the bids are let.
This way the cost of compliance can be figured into the bid and not begrudgingly
and/or halfway done during the harvest.
10. Foresters need to quantify to owners why a better logging job will in fact
mean more value in the long term. This concept of delayed gratification is an
economic principle that may appear to be hard to sell in today's society but
with adequate explanation it is a very tangible one.
UNITED WE STAND, DIVIDED WE FALL
In bid sales there are usually three parties involved, the owner, the owner's advisor (a consulting or state forester) and finally, the buyer. To improve on the marketing/management of timber then all three of these parties need to shoulder responsibility towards improvements. This only seems to make sense in that all three parties have vested interests in having a sustainable quality resource. Managing this resource involves more than numbers on a bid sheet so we need to step back from the cur-rent adversarial relationships and make our goal one of managing fine hardwoods. An atmosphere of cooperation can be the only way a complete timber rotation can be successful. The stewardship ethic has to be practiced by all three parties, the landowner, the manager and the logger and to do this requires that we modify the current market model. The alternative is a continuation of the lowering of timber quality that is occurring now.