Changing Patterns in Forestland Ownership and Use

1
Changing Patterns in Forestland Ownership and Use

• By
• Warren A. Flick
• Retired Person of Leisure
• and
• Thomas G. Harris, Jr.
• Professor of Forestry
• University of Georgia

Presented to the Second Butler/Cunningham
Conference on Agriculture and the Environment,
Trends and Opportunities for Rural Land Use,
November 3 and 4, 2003, Embassy Suites,
Montgomery, Alabama.
2
Economic Context of Land Changes

• Rapidly growing wealth in the South (and U.S.) in
  1990s, followed by the stock market collapse and
  recession.
• Recent changes were very rapidbetter
  communications technology. Almost no one saw them
  coming.

3
The role of land is changing

• People used to own land to make a living. The
  living (from land-based products agriculture and
  timber) was typically modest, and land values
  were low.
• Now it seems, people make a living to own land.
  We live well, push extra money back into the
  land, and land values are up.

4
Take a road trip.

• Tour around Atlanta and other large urban areas.
• Land appears well kept fences are mended, barns
  and homes are spruced up, trash is at a minimum.
• New homes abound.
• The old dilapidated buildings, run down fences,
  and generally trashy look is getting harder and
  harder to find near the cities.

5
Some DataLand Values-1

• Retail v. Wholesale land values about 5,000
  acres.
• Retail (smaller tracts) values are typically
  higher.
• Retail land values (small tracts) are exceeding
  1,000 per acre, and often rising to 3,000,
  4,000 or more. (Source discussions with
  realtors, newspaper ads in Alabama and Georgia)

6
DataLand Values-2
Source Pulp and Paper North American Fact Book,
2002. San Francisco Paperloop.com, 2003.
7
DataLand Values-3
8
Recreation Participation Rates-1
Source Cordell, H. Ken, et. Outdoor Recreation
Participation Trends, 1999.
9
Recreation Participation Rates-2
Source Cordell, H. Ken, et. Outdoor Recreation
Participation Trends. Chapter V, Cordell, H. Ken
Betz, Carter Bowker, J.M. and others. Outdoor
recreation in American life a national
assessment of demand and supply trends.
Champaign, IL Sagamore Publishing 219-321, 1999.
10
Recreation-3

• There are more detailed data starting in surveys
  from the 1980s, and the general picture is the
  same
• Personal trip in 1969 out west then again in
  2003.

AN EXPLOSION IN RECREATIONAL USE OF LAND AND
WATER.
11
Wildlife Data -1

• Wildlife conservation has grown vigorously in the
  60 years from 1930 to 1990, and its been
  successful.
• U.S. Wild Turkey populations have increased
  perhaps 20 to 30 times.
• U.S. Whitetail Deer populations have increased
  perhaps 10 times.
• Perhaps 9 times for Elk, and perhaps 50 or more
  times for Pronghorn.

Source MacCleery, Douglas W. American Forests,
a history of resiliency and recovery, 3rd
Printing. Durham, N.C. Forest History Society,
1994, p. 34.
12
Wildlife Data -2

• The small game story is not so dramatically
  positive.
• Squirrel and Cottontail populations have been
  roughly constant since 1975 in the South.
• Bobwhite Quail and Grouse populations have been
  declining since 1975, nationally and in the South.

Flather, Curtis H. Brady, Stephen J. Knowles,
Michael S. 1999. Wildlife resource trends in the
United States A technical document supporting
the 2000 RPA Assessment. Gen. Tech. Rep.
RMRS-GTR-33. Fort Collins, CO U.S. Department of
Agriculture, Forest Service, Rocky Mountain
Research Station. 79 p.
13
Wildlife Data -3

• From 1965 to 1995, duck populations have
  increased through the 1970s, decreased through
  the 1980s, and increased again through the 1990s,
  both nationally and in the South.
• Canada Goose populations have been generally
  rising, though the picture is mixed depending on
  the population.

Flather, Curtis H. Brady, Stephen J. Knowles,
Michael S. 1999. Wildlife resource trends in the
United States A technical document supporting
the 2000 RPA Assessment. Gen. Tech. Rep.
RMRS-GTR-33. Fort Collins, CO U.S. Department of
Agriculture, Forest Service, Rocky Mountain
Research Station. 79 p.
14
Wildlife-4

• Great success with some major game species.
• Opportunities exists especially with migratory
  animals and with species of newer interest.
• Its likely to be a major interest in the future,
  of society and private landowners.

15
Timber Data -1

• Look at AlabamaForest Service publishes
  state-wide forest statistics. Latest inventory is
  2000.
• Timberland area is up 4.5 since 1990, to 22.9mm
  acres, or 71 of the States land area.
• Even in the face of substantial economic growth,
  the area of forest grew significantly in a
  10-year period.

Source Hartsell, Andrew J. and Mark J. Brown,
Forest Statistics for Alabama, 2000. Resource
Bulletin SRS-67. Asheville, NCUSFS Southern
Research Station, 2002.
16
Timber Data-2

• Forest industry ownership is down to 3.74mm
  acres, a 22 percent decline from about 4.8mm
  acres in 1990.
• NIPF ownership increased to 18.0mm acres (from
  about 16mm acres).
• Of the 18mm, 2.6mm owned by corporate NIPF.
• Of the 18mm, 15.4mm owned by individual NIPFs
• Not too much change in public ownership.

17
Timber Data-3

• Alabamas timberland is about 46 hardwood
  stands, and about 35 pine stands (abt 19
  mixed).
• Volume of softwood growing stock (commercial
  trees) increased 9 between 1990 and 2000.
• Volume of hardwood growing stock increased 17
  between 1990 and 2000.
• Softwood timber harvests increased 24 over the
  previous 10-year period, and hardwood timber
  harvests increased 10.

18
Timber Data-4

• Summary the area of forest is up, weve been
  growing more than were cutting, in hardwood and
  pine, yet timber harvests were up substantially.
• The forest is reasonably balanced between
  hardwood, pine, and mixed.
• And the forest is mostly (95) privately owned.
• Sounds really good to me! Congratulations,
  Alabama!

19
Contrast This

• The development of the lumber industry has
  been so rapid and so recent that stumps of the
  longleaf pines still stand in the main streets of
  many of the towns. Many small mills are in
  operation along with the large ones. The great
  increase in the price of lumber in recent years
  caused people to go lumber crazy along the new
  lines of railroad. Whoever could buy a portable
  mill and some timberland went in the lumber
  business.

Foster, J.H. 1909. Preliminary Examination of the
Forest Conditions of Alabama. Typescript, file
1230.7.13, Kaul Lumber Company Records,
Birmingham Public Library, Birmingham, AL.
20
And This

• Washington County now presents a great expanse
  of cut-over land with no large towns and but few
  scattered settlements. Like the counties of the
  Lower Pine Belt, aside from a few farms, the
  country was formerly a wilderness of forests,
  with longleaf pine extending unbroken for miles.
  Turpentining was the first industry and much of
  the timber was boxed before lumbering began.
  Lumbering followed, but many of the finest stands
  of timber were already destroyed. The recent
  extensive lumbering and turpentining have given
  the country a desolate appearance.

21
Summary

• Land values are up, especially of retail
  timberland tracts.
• Recreational use of forest land has been growing,
  and the numbers bear it out.
• Wildlife populations, at least those populations
  traditionally associated with hunting, have been
  increasing, but the picture is mixed for species
  of smaller animals (and we dont have as much
  historical data on smaller animals).
• The forest itself, in Alabama, has been
  increasing in area and volume.
• It was much different 100 years ago, when the
  lumbering boom was underway.

22
Likely Future

23
The role of land is changing

• People used to own land to make a living. The
  living (from land-based products agriculture and
  timber) was typically modest, and land values
  were low.
• Now it seems, people make a living to own land.
  We live well, push extra money back into the
  land, and land values are up.

24
Old and New

• Old land values were based on the expectation of
  future incomes from farming or timbering (BLV
  100-400)
• Old forestry culture was based on economics,
  especially microeconomics.

• New land values are related to recreational and
  wildlife uses of land.
• New forestry culture is based on ideas like
  sustainability, ecosystem management, and forest
  health.

25
Old and New-2

• Economics emphasizes outputs and revenues in
  relation to costs .
• Major resource issues are supply and demand.
• Appearance and condition of the land was not an
  independent consideration.

• New views focus on the condition of the forest.
• Appearance and composition are critical.
• Supply-Demand analysis isnt as relevant.
• Look at the Forest Services SFRA.

26
Market Dynamics

• Industry selling land in Alabama and elsewhere.
• Unprecedented levels of timberland sales between
  1995 and 2000 totaled 11.3 billion and involved
  15 million acres (PP NA Fact Book, 2002,
  pp.62-63).
• RISI (Resource Information Systems, Inc.) 13.3 mm
  acres of sales from 2000 through first 3 Qs of
  2003.
• In 2002, an industry newsletter lists over 3mm
  acres of sales (Timberland Markets). Same year,
  RISI estimates 3.2mm acres sold.
• So far in 2003, an estimated 6mm acres are in
  play. (Timberland Markets). RISI estimates 2.3mm
  already sold.

27
Land Sale Summary

• Total sales since 1995 About 27.8mm acres.
• U.S. Timberland Holdings, major companies, 2001
  About 45mm acres.
• U.S.F.S. in 2000 RPA estimates industrial
  timberland ownership 66mm acres.
• Conclusion ownership is changing fast, and a
  significant part of industrial ownership is
  involved.

28
Why is industry selling land?

• Weve learned that timber and land markets work
  (now a surplus).
• Increasing global competition in timber growing,
  manufacturing, and marketing.
• Environmental and regulatory pressure is raising
  costs of land management in the U.S..
• U.S. Tax lawsincome and propertydiscriminate
  against corporate ownership. (double tax, no
  capital gains, increasing property tax pressure)

29
Categories of landownersthe players

• Forest Industry (own land and manufacturing
  facilities)
• Private individuals and groups, including farmers
• Publiclocal, state, federal
• TIMOs (Timberland Investment Management
  Organizations)

30
TIMOS

• The TIMOs will hold land for a short period of
  time (perhaps 10-15 years), then retail it out to
  private owners or sell it to other TIMOs,
  government or conservation groups.
• Their interest is financial they arent making
  investments in forest research (they are using
  the existing store of knowledge developed largely
  by industry and some university research).

31
TIMOS-more

• They are required by law to attend strictly to
  the financial interests of their clients.
• They have no investment in manufacturing and
  little commitment to local communities.
• Therefore, if the economics of timberland
  ownership (returns to timber growing and
  ownership) begin to cloud up, pension funds may
  reduce their interest in this asset.

32
Timber PricesHypothesis

• Industrial ownership is declining
  (dramatically?), but overall timber supply is
  increasing.
• Mills are closing in the U.S. Between 1989 and
  2002, 63 wood-using pulp mills closed in the
  U.S., and 22 of them were in the South.

33
Timber PricesHypothesis

• From the mid 1970s (and before also), through the
  1980s, the news in the trade journals was about
  mill openings and expansionspulp and paper as
  well as wood products.
• In the 1990s, the news gradually turned to mill
  closures and timberland divestments.

Timber Processing, Nov. 1998, Start it Up, pp.
27-31, traces much of the news.
34
Timber PricesHypothesis

• These market dynamics were reviewing point to
  downward pressure on timber prices demand is
  down, monopsony is increasing, and timber supply
  is up.
• And globalization is increasing competition on
  all fronts timber growing, manufacturing, and
  marketing.

35
TIMOS-yet more

• In our perception, TIMOs are increasingly likely
  to rely on increases in land values to generate
  positive returns.
• That tends to increase the speculative element in
  forestland investments, which may reduce pension
  fund involvement. It isnt clear that rural land
  speculation is a prudent investment.
• Is their long-term future bright? We are
  skeptical. At least one pension fund has recently
  decided against forestry.

36
Private Landowners Role

• What will that role be in the South? Our view
  paramount.
• In the last year and a half, about 77 of the
  acres of timberland transactions have been in the
  East and South. (Timberland Markets, 1(4)4
  (August 2003).
• Tax efficient (income, property, and perhaps
  estate).

37
Private Landowners Role

• There is substantial public support direct
  subsidies and public extension activity.
• Only ownership category ready to absorb and
  reflect our changing social interest toward
  recreation and wildlifeflexible.
• Often involved with local community.
• Deemed socially healthy, like the family farmer.

38
Related Points

• Forest Landowner 34th Manual Edition, March/April
  2003, documents the costs of forestry practices.
  Land management practices.
• During the 1980s through early 1990s, there is a
  mixed pattern of costs in relation to wholesale
  southern pine lumber prices.
• From mid to late 1990s, with the run-up in lumber
  prices, costs lagged way behind.

39
Related Points

• But since the late 1990s, wholesale lumber prices
  have declined, and forestry costs have
  skyrocketed.
• Timber culture, by itself, is getting harder to
  justify, and landowners with money and a variety
  of interests are in the best position to do it.

40
Related Points

• Regarding timberland, the industry has learned
  that timber markets work. It doesnt need to own
  land.
• Intensive forestry is reducing the need for
  industrial timberland.
• The industry is not likely to again become a net
  buyer of timberland.

41
Related Points

• Regarding manufacturing, the closing of U.S.
  facilities is consistent with long-term patterns
  of economic development in which regions tend to
  move from extractive industries through
  manufacturing and into service and information
  industries.
• Manufacturing capacity is not likely to grow much
  in the South.

42
Summary

• Land values are up, new owners are moving in, the
  rural landscape is sprucing up, and there is a
  growing interest in recreation and wildlife.
• Forest industry landownership is declining.
• TIMOs have grown vigorously in the past 10 years,
  but were not sure this is a long-term trend.
• The economic prospects for timber growing seem to
  be declining at the margin, and these declines do
  seem to be long-term.

43
Conclusion-1

• Were talking about the margins of activity,
  about the character of growth and change.
  Traditional elements of forestry will be here for
  years to come.
• Without going into detail, let me say that both
  of us have sometimes been wrong. We believe what
  were saying today, but we know the future will
  unfold without regard to what were saying today.
• Nevertheless

44
Conclusion-2

• In the East, there is an enormous entrepreneurial
  opportunity to serve landowners interested in
  recreation and wildlife.
• New owners have money and are accustomed to
  paying for service.
• We may be headed into an age of unbridled
  multiple-use forestry, and in the South it will
  be mostly on private land.