Does the Rinfret Report Miss the Mark?

By Ralph Lamon Lamon Lumber Co. San Francisco, Ca.

An Economic Analvsis of the Softwood Lumber and Plywood Industries covering the period of 1970-1973 has recently been distribuied by the Rinfret-Boston Associates.

It is a readable, concise, extensive, distillation of the softwood industry covering 64 pages of text supported by another 73 pages of explanatory tables, statistics, acknowledgements and a bibliography.

The origins of the report emanated from the Price Controls imposed by Washington Aug. 15, 7977. From inception to termination a great deal of industry effort was expended in trying to adjust unfair or unworkable aspects of the program to improve its performance.

The brunt of this work was done by industry and association leaders who spent long days attending conferences, testifying, marshalling industry response to the varying directives of the Wage-Price Boards. Among their many frustrating problems trying to make life more livable for the rest of us was the lack of an authoritative broad-based written record of the lumber industry and how it operates. They often lacked reference material which could document positions which they knew were correct.

A further and perhaps more im- portant void was the lack of documentary support for the concensus industry assumption that controls on the softwood industry were countOrproductive and unworkable.

The solution was to locate a respected non lumber consulting firm - pay them well - ask them to write a nuts and bolts analysis of softwood lumber and plywood and then tell it like it is about free markets and controls.

Spearheaded bythe North American Wholesale Lumber Assn. money was raised, and Rinfret-Boston Associates undertook the job.

The message of the report is contained in Part Six: manner as supply expanded and prices decreased. Controls were inefficient; the free market is efficient, benefitting producers, distributors and consumers.tt*

Story at a Glance

A thoughtf ul analysis that sharply questions the industry sponsored Rinfret Report (see The Merchant, p.12, June issue) for its failure to recognize the degree of government control over the lumber industry, thus weakening the report's usefulness.

"On August L5,1971, price controls were imposed on the superbly efficient pricing mechanism for softwood lumber and plywood. After imposition of controls, the market mechanism stopped working. The results of imposing rigidity on a system historically characterized by flexibility were disruptions and distortions. Entrepreneurial drive was frustrated. The allocation of product through a competitive, highly variable price structure was stymied. When price controls were removed, the industry immediately began to operate ina more efficient *closing paragraph page 65

So much for the good news. The report has minor problems. Some of the language seems a bit stilted; expressions are used which seem somewhat off lumber kev. It is inundated with charts and statistics. We suspect no one pointed out to Rinfret that lumber

(Please turn to page t2)

(Continued from page tl) numbers are grounds for susPicion even from the best available sources. cile with our lowering 1974 markets.

Unfortunately, the rePort has major problems.

Several pages are devoted to an analysis of timber ownershiP and timber supply. Although facts and statistics are produced to support the descriptive material, the report misses the reality of the West Coast Sawmill industry by a country mile.

The generalized and vastly oversimplified facts are these. Large timber owning mills produce no more than 25% of the West Coast Lumber production. Seventy-five percent (perhaps over 80%) is sawn by independents owning verY limited timber holdings. Very limited in this context means six months to five years with heavy accent on one to three years.

Where does this preponderant fraction expect to find future log supplies? From Japan? From farmer lots? From private holdings? From the timber wealthy bigs such as Weyerhaeuser, International Paper, Simpson, Zellerbach? Hardly. The future of the West Coast sawmill industry as we know it today is almost totally dePendent on government timber sales.

Sawmill owners pay these Prices not because they want to or think they can make a profit but because they haue to.

Most analysts anticiPate a deficit timber supply condition in the upcoming years. Public timber availability being dependent on politics, on the wallop of strident minority claques, on the vagaries of the courts, on the limited suPply, we can be positive of an intense competition for logs. Since no one can visualize a system of controlled timber prices (how else can the pie be divided)? log costs could escalate to God knows where.

Given the precarious timber supply situation, each mill will have to maximize its sales return in order to compete to buY more high priced logs in order to survive. To expect the West Coast mill to voluntarily and cooPeratively restrain lumber prices for the "Good of the Order" or to keeP the government from intervening is just not to understand the components of the situation.

and Building Materlals MERCHANT

he is discussing our "free" lumber market. We recently experienced the Russian wheat deal which jolted the whole rail transportation system. Again, a government department initiated a drastic alteration in the Iumber supply demand equation which affected prices for months.

Then there are export markets. Most of the time during "normal" markets we don't give the exPort situation too much thought. When you have an insatiable domestic demand and then you chunk on an unprecedented demand from overseas subject to no price or Profit controls it is not hard to guess what happened to logs and lumber. We didn't get what foreigners needed.

The flow of this material wasyou are already ahead of medetermined by the government. By being involved in supply, by subsidizing building, by maniPulating fiscal policies, by involvement in the transportation sYstem, by directing foreign trade flow, Washington has a huge and continuing influence on our lumber economy.

The mechanism for transferring from public to private ownership is the timber auction. Although minor "protective" devices exist such as excluding the "bigs" from certain auctions under certain conditions, essentially public timber is sold to the highest bidder. This for the good and sufficient reason no one has yet come up with a better system of selling public timber. Public stumpage (largely Forest Service) dependence by log-hungry or log-starved mills creates a raw material cost structure which has its own imperatives.

This is illustrated by current timber sales in the Northwest. Standing timber has been selling for $250, for $310, for as high as $429 per thousand. Adding another $50 or so for logging costs makes these numbers impossible to recon-

Government influence on the lumber industry is by no stretch of the imagination confined to timber supply. There aren't too many lumberman still active who can remember when the government didn't subsidize building. Everyone of us has profited to a greater or lesser extent from government largesse. Being rugged individualists we don't discuss this very much. Rinfret reports this not at all when analyzing what makes markets and prices. We get very much more vocal on the subject of government money supply and or interest rates.

Washington doesn't ever want to create policies which hamper the construction or homebuilding industries but periodically they do have a run about trying to contain inflation by manipulating our credit system.

Whether they actually achieve what they are trying to do is beyond the scope of these thoughts, but every one of us knows what happens to our business, be we builders, wholesalers, retailers, or sawmill people.

Again, nothing in Rinfret when

In short, the Rinfret report does not recognize the muscle the government has in the lumber business. Our classical "free matket" that Rinfret salutes has much of its freedom hemmed in by government policy.

We have had as much experience as the next lumberman with controls. Our first job after four years in uniform in 1946 was as a lumber buyer in Eugene. We "bought" lumber for nine months under controls. The distortions, cheating, bribing, chicanery of that period has to be experienced to be believed. The recent control period by any standard we can think of was hardly successful. We agree with the report - controls are bad.

We may get controls again as a result of severe supply - demand imbalances or as a result of general economic policy. We may get controls as a natural consequence of the strong tide toward collectivist government.

Should this unhappy day arrive we will need our best lumber logic to defend the barricades. Although the Rinfret report is firmlY opposed to controls, we don't visualize its effective use by the industry because of its failure to evaluate the total scene.