Problems of the Forest Industry: Discussion

The paper by Sedjo and Lyon attempts to examine long-run changes in comparative advantage for forest resources trade. An optimal control model is used to forecast the time path of prices and production under autarky and free trade in order to gain insight into the significance of emerging forest plantations as an alternative to the harvesting of old growth timber. The contribution of this paper is simply to make us aware of the implications of this change in the structure of timber production-from a system comparable to hunting and gathering to one similar to commercial agriculture. It also illustrates the importance of long time horizons in timber production decisions and, hence, the need to forecast developments in international timber trade well into the future. The forest transition phenomenon will undoubtedly have a significant impact on the patterns of international trade in timber. As time passes, existing stocks of old growth timber may become less important, while comparative advantage will come to depend upon those factors affecting the potential for forest plantations. Whether this model is adequate to assess comparative advantage or to understand the implications of that transition for trade policy analysis or for planning investments in forest plantations is another question. Several deficiencies of the current model for addressing those tasks are noted below. The model aggregates the world into two regions. The authors note, however, that there are a number of important suppliers endowed with differing quantities of harvestable old growth timber and differing potential for developing forest plantations. In their discussion of the relevance of this model to international timber trade, they observe that several new regions are emerging as important suppliers, especially in the developing world. The potential for additional entrants, when the "ability to produce and export agricultural commodities [i.e., timber] is independent of whether that commodity happens to be indigenous" remains unexplored. Adjustments of the system to forest plantations within a country are also not considered, and yet such regional adjustments are probably extremely important in assessing the future of U.S. comparative advantage in timber. A proper investigation of comparative advantage would need to consider export potential based on resource endowments and opportunity costs of timber production rather than based solely on supply and demand. This partial equilibrium approach falls into the common trap of evaluating absolute advantage, ignoring the potential for the international market to adjust price relatives. Comparative advantage is based on the notion that special characteristics of individual countries dictate trade patterns. Timber stocks represent such characteristics (endowments), being nontradables whose prices will adjust relative to tradables through land rent and exchange rate changes. McCarl and Haynes argue that such adjustments are now determining U.S. and Canadian softwood lumber trade-as the U.S. exchange rate appreciated recently, incentives to U.S. production and trade fell relative to Canada. Such adjustments could insure continued expansion of forest plantations simult neously with old growth harvesting, as dictated by resource endowments across the major regions and for potential suppliers. Such trade patterns, where new and old technologies coexist, are common for other agricultural commodities. The rate at which the transition to forest plantations drives out old growth harvest, and therefore the optimal rate of investment in timber production capacity, also depends crucially on demand assumptions. The current a sumption, that no growth in demand occurs, is clearly unrealistic. Increases in timber demand will surely follow income growth in existing importing regions. Increased use of substitutes or changing demand patterns for timber products (as changes in the housing industry may imply, for example) could drastically alter demand growth. One must also be Philip C. Abbott is an associate professor of agricultural economics at Purdue University.