Northern Arizona could become a sawmilling centre for small diameter wood, according to a new report.

Three towns have been identified as possible sites for the project and the report says a viable timber industry could be created with the right technology, funding and planning by the US Forest Service.

A key to making the initiaitve work would be the installation of a mill designed to handle logs as small as 5in in diameter. It is forecast that such a mill could cost between US$10-15m to build.

Clearing of small trees could help prevent forest fires and improve the health of forests.