Green Horizons

Volume 4, Number 2
Summer 1999

Are Tree Farmers real? Part 1

In a recent issue of Forest Management Update, Arlyn Perkey who is a forester with the USDA Forest Service at Morgantown, W.Va. tells of the disaster suffered by forest owners Tom and Sheila Thomson of New Hampshire. The Thomsons, who were recognized as the Northeast Regional Tree Farmers of the Year in 1997, had their tree farm devastated by the January 1998 ice storm that struck northern New England and damaged nearly 1 million acres of forestland in New Hampshire. Over 90 percent of the Thomsons' trees on 900 acres were destroyed.

It is the story after the disaster in which Perkey makes his point:

"Some will argue that what happened to the Thomsons is a good example of what risk is all about. They made an investment, and they suffered a loss. It's all part of the cost of doing business. That is true, but isn't it also true that considering the benefits they are providing free to society (clean water, wildlife and recreation), the least they deserve is to be treated equitably? Shouldn't they receive the same consideration as other family farmers?"

"After the ice storm, Tom and Sheila pursued all avenues of support normally available after natural disasters. Unfortunately, they learned that timber is not considered an eligible agricultural crop by the USDA's Farm Service Agency. From the agency perspective, timberland is not cropland, even if it is managed under a Stewardship Plan developed through the federally funded Forest Stewardship Program. Their inquiries about assistance did result in letters stating why the agency couldn't help. If the Thomsons were seeking disaster assistance for damage done to a sugarbush that generated annual income, they would be eligible for clean-up assistance through the Emergency Conservation Program. However, apparently since their income is periodic rather than annual, they don't fit into the traditional mold of agricultural producers that are served by farm programs designed to support the family farm. Similarly, they are not eligible for EM loans (Emergency loans) as the following excerpt explains:

'A timber owner, who only had woodland and did not qualify as a farm by producing any other crop, would not be considered eligible for EM loans.'

The message in that statement is not very subtle. Tree Farmers aren't real farmers unless they grow a crop other than timber that makes them eligible.

What about the Small Business Administration? Can they help? Their response:

'The Consolidation Budget Reconciliation Act of 1985 prohibits the Small Business Administration (SBA) from providing disaster loans to agricultural enterprises. The SBA defines agricultural enterprises as those businesses engaged in the production of food and fiber, ranching and raising livestock. Information provided with your application indicates that your primary business activity is the operation of a Tree Farm. Based on SBA guidelines, your business is not eligible for disaster loan assistance.'"

Could they deduct the loss from their income taxes? Yes, but...

"The allowable deductible loss is much less than the true loss they incurred. While their loss certainly would appear to qualify as a casualty loss, their deduction is limited to the allowable basis of the timber less any compensation (like revenue from a salvage sale.) That means their deduction can't be any more than the undepleted portion of the cost basis of the timber. Whatever increase in value they had realized because of tree growth and increase in timber prices is lost, and it is not deductible. "Apparently, the IRS has a perspective similar to the Department of Agriculture. Timber is not really viewed as an agricultural crop. Trees aren't seen as a commodity that grows every year and hopefully increases in value annually.

Most family farm-size Tree Farmers don't sell their growth every year. To have a marketable quantity of timber they must accumulate multiple years of growth into a viable sale. If they suffer a casualty loss while growing that marketable quantity, it is not recognized. The loss of their increase in value from time of purchase is not acknowledged as a crop loss. That should change."