An Economic Analysis of Forestry Policy

Author Name YAMASHITA Kazuhito (Senior Fellow (Specially Appointed), RIETI)
Creation Date/NO. February 2021 21-J-008
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Trees are cut down and processed into logs. Logs are made into wood products which are provided to final users such as construction firms. In the last several years, the governmental white paper on forests and forestry has warned the public that the price of trees is too low to encourage owners of forest land to plant new trees. As a matter of fact, the price of trees more than compensates for the actual cost of afforestation, taking into account the subsidy for forest owners, which covers more than 70% of the afforestation cost. In addition, a mayor can order a forest owner to plant trees when he or she leaves forested land bare after logging operations. Its offence is punished with a fine.

In fact, however, almost 70 % of land where trees are cut down is left without afforestation, despite subsidies or regulations.

The governmental white paper on forests and forestry asserts that the price of a tree is equal to the price of the log minus the cost of cutting down and transporting the tree. Based on this assumption, it argues that the price of a tree can increase with a decrease in cutting and transportation costs. In spite of the productivity increase by the widespread installation of high-powered cutting and transportation machinery thanks to subsidies, the gap between the price of a tree and the price of a log has widened rather than narrowed, while both prices have decreased. On the other hand, the price of wood products remained constant regardless of the decrease of both the price of trees and logs.

Making use of basic economics tools, this paper analyses the mechanism that has allowed the price of wood products to remain highly stable while the price of logs has decreased and the price of trees has fallen further. Based on this analysis, I will show why the subsidies for high-powered machinery which were intended to decrease the cost of cutting and transporting trees have been completely ineffective in increasing their price.