Indicator – M6. Existence of economic rents: Total harvesting revenues exceed harvesting costs.

Principle – Yield and Quality of Forest Goods and Services are Sustainable

Criterion- Forest management is socially efficient.

Indicator – Existence of economic rents: Total harvesting revenues exceed harvesting costs.

Box B: Definition:

Total harvesting revenues exceed harvesting costs, indicating that economic rent exits.

Box D: Applicability to Different Landowners. Explain any differences.

N/A

Box E: Overlap.

CCFM: L5, 5.1

Notes:

The indicator is diagnostic, but could also have limited predictive capability if time series trends are examined.

Box I: Underlying Concepts:

As described by Ruitenbeek, and Cartier (1998), economic rents represent values above the cost of harvesting and looking after the resources. Most of the effort in maximizing the rents lies in proper technical management of the resource and in using the lowest cost methods to do so. The extent to which a given property, region, or country generates economic rents is therefore a potentially powerful indicator of economic efficiency. But measuring this rent can be complicated.

Box J: Relevance to Sustainable/Unsustainable Management:

Rational decision-making dictates that attention be paid to economic efficiency. Measuring such efficiency, however, is not always a simple task. Commonly used measures of profitability, such as internal rate of return or benefit cost ratios, can be misleading. Measures of rent seem to provide a clearer picture of overall efficiency, as they show the collective impacts of stand management efforts, industrial structure, institutional effectiveness, and economic policy neutrality. The flaw in many of these approaches, however, is that they fail to reflect asset damage: measures of ‘economic wealth’ effects in forestry management are often ignored in the entire reporting framework.

Box K: Measurement Methods :

Assess, for the various ownerships, the gross revenues and expenses for timber production to determine whether economic rent (the revenues less expenses) exists.

Box L: Data Required:

The data required are the gross revenues and expenses for timber production for the various ownerships. For publicly owned forests (e.g., National Forests, State Forests), this data is a matter of public record. For private and corporate forests, the information is inherently proprietary and essentially unavailable. Even so, economic rent can be presumed to exist for these ownerships, since it is highly unlikely that timber production would occur on these lands in the absence of economic rent.

Box M: Data Used for the North American Test :

Data for the test came from two sources. Revenues and expenses of the timber program for the Boise NF were taken from the various editions of the annual TSPIRS (U.S. Forest Service, 1997) report. Data for timber operations on State of Idaho lands within the study area were assembled from Agency records. For private and corporate forests, information on revenues and expenses was proprietary and unavailable.

Box N: Example Results:

Box O: Assessing the Practicality :

Existing programs are in place with the National Forests and the Idaho State lands to trace this indicator over time. Tracking the indicator for private and corporate lands is unnecessary.

Box P: Assessing the Information Value :

Measuring for the existence of economic rent provides a clear picture of overall efficiency, and summarizes the collective impacts of stand management efforts, industrial structure, institutional effectiveness, and economic policy neutrality.

Box Q: Overall assessment :

Accepted -

Strengths:

1. Provides a clear picture of overall efficiency;

2. Existing programs for federal and state lands make measurement straightforward.

Weaknesses:

1. Insensitive to operations private and corporate lands where the existence of economic rents is presumed.

Box R: Did you rewrite or revise to a new indicator. If so what?

No.

Box S: References:

• Canadian Council of Forest Ministers; Natural Resources Canada, Canadian Forest Service, Headquarters, Ottawa, Ont. 1992. National Forest Strategy. Sustainable forests: A Canadian commitment.
• U.S. Forest Service. 1997. Forest Management Program Annual Report: National Summary, Fiscal Year 1997. Washington DC.
• Ruitenbeek, H. Jack and Cynthia Cartier. 1998. Rational Exploitations: Economic Criteria & Indicators for Sustainable Management of Tropical Forests. CIFOR working paper, draft of April 1998.