Financial Analysis of Scale Versus Lump Sum Timber Sale Payment Methods

Patrick M. Barron, Mike Kilgore, Charlie Blinn

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

A financial analysis of two methods commonly used by public land management agencies to collect payment for stumpage sold was carried out using data from the St. Louis County Minerals and Land Department (SLCMLD) in northern Minnesota. The two payment methods evaluated were scale (also called pay-as-cut and consumer scale) where the buyer only pays for timber harvested and lump sum (also called sold-on-appraised-volume or SOAV) where a buyer pays for the entire tract's estimated volume, regardless of the amount of timber actually harvested. The analysis found no significant difference in gross timber sale revenue collected by the SLCMLD under the two payment methods Scaled timber sales incurred an additional $323 in administrative costs per timber sale compared to lump sum timber sales. This increase in administrative costs represents less than 1% of the timber value contained in the average SLCMLD timber sale. Differences in the standards agencies use to estimate merchantable stand volume of a timber sale and the administrative time spent processing timber sales can impact the financial costs associated with each timber payment method.

Original languageEnglish (US)
Pages (from-to)63-69
Number of pages7
JournalJournal of Forest Economics
Volume28
DOIs
StatePublished - Aug 2017

Bibliographical note

Funding Information:
This work was supported by the Minnesota Environment and Natural Resources Trust Fund as recommended by the Legislative-Citizen Commission on Minnesota Resources ( LCCMR ) and the University of Minnesota’s Agricultural Experiment Station (projects 42-065 and 42-057 ). The authors acknowledge and thank Mark Weber, Jason Meyer, Tom Zeisler, Mark Pannkuk, Mark Reed, Matt Butorac, Julie Berg, Sharyl Odegard, and Brenda Dirks with the St. Louis County Minerals and Land Department for their continuous support throughout this study. In addition, the authors recognize the Minnesota DNR for their input. Lastly, the authors thank Nick Reep for his contributions.

Keywords

  • Economics
  • lump-sum
  • scale
  • timber harvesting
  • timber payment method

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