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Economics of forest restoration: the case for careful logging is made by a father and son team that aims to leave things better than it found them.

Below is a picture of Jerry Magera and his son Sam in the spring of 2001 standing in a recently thinned stand of mixed ponderosa pine, Douglas-fir, and tamarack. These guys are my heroes.

Jerry is a retired U.S. Forest Service forester. He and Sam have a consulting forestry and logging business in Enterprise, Oregon. He manages my family's land, a few thousand acres of forest, meadows, and steep grassland on Joseph Creek, homeland of Chief Joseph of the Nez Perce, which cuts a 2,000-foot canyon in the Paradise Bench of northeastern Oregon.

The neighboring rancher, who was running cows on the place and was responsible for fencing, came by while they were thinning in the snow and started cutting tamarack snags for fence posts. They told him we were leaving snags and suggested he use some of our culled tamarack logs instead.

Jerry and Sam finished thinning the stand when the snow melted in early March; we returned to see how it looked that May. Above Sam's head, almost out of the picture, is a cavity that had an active family of nesting pileated woodpeckers. Nearby in a small hole in another smaller snag was a pair of mountain bluebirds.

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Directly over Sam's head on the small leaner is a fledgling great gray owl. Directly over Jerry's head, about three-quarters of the way up a live tamarack, is the old red tailed hawk's nest where the great grays raised three young. It was one of the larger, better quality trees left in the thinning that was completed only days before the great grays began incubation.

This was a roughly 100-year-old, 21-acre stand with about 40 trees per acre, average height about 90 feet with a 17-inch dbh (diameter at breast height). The stand was logged at least twice in recent history by a "diameter cut," which takes the largest and most valuable trees, most recently in the early 1950s. It is a high, dry country, just 15 to 18 inches of precipitation, almost half of which is snow at its 4,500-foot elevation.

The general prescription is to take the worst, leave the best through variable retention 'thinning from below," emphasizing species, structural, age class, and landscape-scale diversity.

But here it's leave the snags and character trees. Look for beauty. Jerry picks the trees one by one, always looking to reduce insects and disease, cuts the stump at ground level and burns up most of his chain saw fuel slashing the limbs and tops into small 1- to 2-foot lengths scattered about to decompose into soil, while Sam does the skidding in a used Chinese "Rhino," which generally runs well, when it is not in their shop in Enterprise.

Over the past decade Jerry and Sam have logged through some 600 acres of ponderosa pine, Douglas-fir, tamarack, and grand-fir. Under their prudent care, my family has been able to net a few hundred dollars per acre, perhaps a quarter of what traditional high grading would generate but sufficient to self-fund long-term forest restoration.

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In 10 years and thereafter we will recycle through the same stands and log mostly larger-diameter, higher-quality trees; "income" from a larger stock of forest capital. We are restoring more natural forest condition for "stand maintenance" versus "stand replacement" from the inevitable lightning-caused fires that in late summer sweep the country once known by Chief "Rolling Thunder" Joseph.

This is part of the Blue Mountain province, rugged and diverse country about which whole books have been written describing "forest nightmares," a long legacy of fire prevention, high-grade logging (cutting the biggest, leaving the worst), and clearcutting in a forest once maintained by periodic groundfire where ponderosa pine grew to 6 to 10 feet in diameter and early pioneers drove wagons through park-like forest and meadow rich in fish and wildlife.

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Taking the poor trees and leaving the good ones has a number of substantial benefits. It maintains a wider range of thermal cover (both winter and summer) and improves habitat for a significantly greater diversity of birds and wildlife. It builds soil; reduces the threat of bark beetle and other insects, mistletoe, and disease; reduces threat of catastrophic fire; puts moisture and nutrients into faster-growing, better quality/more valuable stems; increases grasses and forbs for grazing; permanently stores more carbon; and encourages natural regeneration from seeds of the higher-quality residuals. It also improves snow retention and soil moisture and significantly increases the scenic and recreational values of the land for existing and future owners.

These are values the Mageras appreciate.

Some forest products professionals and industry leaders would call this hobby forestry. Standard industry forest evaluation runs "discounted cash flow analysis" (dcf) for forestland acquisitions, which calculates the present value of future streams of income from log sales and other revenues plus the "terminal" value of the forestland at the end of the period. The lower the "discount rate" (the less one values future money), the higher the forestland value today.

Thus if you use 5 percent annually as the rate at which future streams of income are discounted to present value ($1 dollar next year is worth 95 cents today), you should be willing to pay a higher price for forestland than someone using 8 percent.

Trees grow slowly, so small differences in discount rates make big differences in forestland values in the marketplace. Discount rates are similar but different than "cap rates" (return on capital or rate of return); those expecting higher returns tend to cut harder to generate more money sooner.

But I majored in economics and have struggled all my life to understand this. Healthy ecosystems that sustain all life, species, structure, and age class diversity, clear streams, stable global climate, and beautiful views, of course, don't figure for much in this "income statement" approach to forestland investing and management.

But there is a balance sheet (assets vs. liabilities, i.e. wealth or poverty) as well as an income statement (revenues vs. expenses, i.e. profit or loss) in business, and forestlands management is necessarily a long-term, generational sort of enterprise that has everything to do with growing value. To say nothing of the thought that social and natural--as well as economic--capital should count for something.

In some ways this is pretty straightforward stuff. There are strong economic incentives to over-harvest trees and thus is our history As one wag at President Clinton's Northwest Forest Summit put it "the forest industry is not up against the spotted owl. It is up against the Pacific Ocean."

Now Wall Street has discovered that you can buy a forest, cut down the trees, and make money. Pure play forestland investing comes in the form of timberland investment management organizations (TIMOs) and real estate investment trusts (REITs).

By some calculations, over the past 15 to 20 years, 40 to 50 percent of large U.S. industrial forestland ownership has changed hands from the traditional integrated forest products companies to TIMOs and REITs. TIMOs are generally "fixed term" (generally 10 to 15 years), closed funds in which many of the incentives are not particularly encouraging for the health of forest ecosystems.

Fees are generated for placing capital (buying forestland, at whatever price); the dcf model for valuation encourages heavy logging, subdividing, and selling off "higher and better use" (hbu) for real estate development or conservation, and organizers generally have a "carried interest" of 20 percent of profits after original capital returns to investors at the final sale of the forestland. It is not clear where this will all go, but if Steven Levitt, best-selling author of Freakonomics, is right and everything is about incentives, we have a ways to go to figure out how to maintain and restore forest ecosystems on private land.

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Jerry and Sam Magera don't have a lot of time for big words and the large scale restructuring of the forest products industry around the world. Jerry told me recently that at 60 he didn't figure he had all that much time left, so he just wanted to leave things better than he finds them.

As I said before, these guys are my heroes.

Spencer Beebe is founder and president of EcoTrust.

Story and photos by Spencer Beebe
COPYRIGHT 2006 American Forests
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Copyright 2006, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:PERSPECTIVES
Author:Beebe, Spencer
Publication:American Forests
Geographic Code:1USA
Date:Mar 22, 2006
Words:1376
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