Fall 2005

Rapid Changes In Forest Ownership Increase Fragmentation

by David Wear

In the Southeastern United States, the area, distribution, and structure of forests are almost exclusively determined by the choices of private landowners. Nearly 90 percent of forestland is held by more than 5 million individuals or firms with a broad diversity of objectives regarding their forests. In spite of this diversity, land use and resource management has played out in generally predictable ways. Overall, lands tend to move toward the use that has the highest market value, more timber is harvested in response to increasing prices, and forest investments have tracked well against expectations about future timber returns. This predictability allows us to anticipate how southeastern forests could be reshaped by ongoing economic trends and to anticipate the implications for the forest benefits valued by residents of the region.

This article focuses on three important and interacting changes affecting private forests in the South. One is land development fueled by economic and population growth. A second related effect is new patterns of growth that place higher population densities in the vicinity of forests. The third change is the restructuring of the forest products industry, which has long held many of the largest tracts of contiguous forests in the Southeastern United States. These three dynamics will determine the future extent and fragmentation of the South’s forests.

Changing Land Uses and Ownership

A comparison with recent history will show just how rapidly southeastern forests are changing. While the total area of forestland in the region varied little between the 1950s and the 1990s (plus or minus 5 percent), anticipated economic growth could result in a loss of 10 percent of forests by the year 2020—an amount of forest loss not seen since the agricultural boom of the early 19^th century. In areas that remain rural, landowners could offset forest loss by shifting some agricultural land to forest uses, but this depends on the strength of timber markets relative to markets for agricultural products. Even if losses due to urban growth were completely offset by gains from agricultural lands, the structure and location of future forests would be very different from today’s forests.

Forecasts of economic and population growth in the South indicate that urbanization will dominate current and anticipated changes in forests for decades to come. The conversion of forestland to developed uses represents the most direct and predictable outcome of this growth. A less direct, yet substantial implication of anticipated growth is the increasing density of population in large areas surrounding the urban centers of the region. Unlike growth patterns observed in the 1960s, 1970s, and 1980s, where the populations of counties outside of metropolitan areas declined while cities grew, growth in the 1990s and beyond has been spread across both rural and urban counties. The result is a parsing of rural land into smaller and smaller tracts and an expanding presence of humans in forested ecosystems—that is, growth in what has come to be called the wildlandurban interface.

Timber management has shaped and will continue to affect the structure of forests, especially in the South. As timber inventories declined in other parts of the United States, the area of the South’s plantation forests increased from zero acres in 1950 to more than 32 million acres in 1999. The majority of these intensively managed forests were established by forest industry. These companies have managed the largest contiguous blocks of forests in the South, and together comprised more than 20 percent of the region’s timberland in 1999. The recent restructuring of the forest industry holds important implications for the future structure of southern forests.

Between the 1950s and 1990s, the area of forests owned and managed by forest industry varied little in the South. This started to change in the late 1990s, and since 1999, the industry has rapidly divested its land holdings. The sale of forestland can be traced to the rapid consolidation of the wood products sector since the late 1990s. To service the debt resulting from these acquisitions, buyers have liquidated low-return assets, especially timberland.

Fundamental to the decision to sell timberland is a change in the perception of the availability of raw materials. While holding timberland was once viewed as a necessary safety net against interruptions in the flow of raw materials—indeed, industry’s large land holdings probably explain the vast expansion in the South’s share of the sector since the 1950s—timber supply from other owners is now viewed as reliable and plentiful. As a result, actually owning forests is no longer seen as necessary for participating in the sector; industry ownership of forests has declined precipitously since 1999. In 5 years, as much as 20 million acres or 50 percent of the timberland once owned by industry has been sold, and recent announcements suggest that much of the remainder could be sold in the near future.

Implications for Forests

Taken together these forces of change have important implications for the ownership and management of southern forests. Conversion of forestland to developed uses is concentrated in expanding metropolitan areas—especially in the Southern Appalachian Piedmont, along the Atlantic and gulf coasts, and throughout Florida. Population density continues to expand in large areas along the periphery of these metropolitan areas, and the changing demographics of forest landowners give rise to new preferences and priorities for forests under their control. Though complex and sometimes subtle, we might summarize this demographic change as a shift from a rural-utilitarian to an urban-aesthetic perspective on forest values. This shift suggests changes in land use and management away from timber uses and toward a more hands-off approach.

The fragmentation of forest ownerships in lands outside metropolitan areas limits many management opportunities—for example, parcel size may fall below the scale that can support harvest or fuel treatments. Increased human presence also interferes with ecosystem functions—for example, higher road densities allow invasive species to move through a landscape, and human presence can reduce the habitat value for certain forestspecialist species, including imperiled amphibians and neotropical migrant birds.

Sales of forest industry timberland will have a strong impact on fragmentation in the South. As a group, industry holdings are unique in terms of their size, contiguity, and high capitalization. The unusually large blocks of forests held by the industry are the result of a onetime confluence of economic and social conditions that led to largescale divestitures of State and Federal public land in the South following the Civil War. The ongoing divestiture of industry land pulls apart these large holdings and fragments ownership and forest cover. Parcels located near metro and extra-metro areas are split off and developed. A large share of the land will remain under forest cover and management, but many of these industry lands have been purchased by Timber Investment Management Organizations (TIMO), an ownership class with a very different management model from that of the forestry industry.

TIMOs don’t own land outright. Rather, they act as intermediaries, acquiring and managing forests for investors that range from individuals to pension funds. The way these investments work can lead to forest fragmentation. Investments are often structured as closed-end funds, with forest parcels bundled to form an investment fund with a fixed term. At the end of the term, the assets of the fund (forest parcels) must be sold and the returns distributed to the investors. By definition, the land must be sold, likely to another group of investors, with some portion possibly sold for development.

This cycle of investment and distribution raises questions regarding forest sustainability. Investors under this type of ownership have a shorter time horizon for planning forest management. Will investment decline, and forest conditions change under this management model? This style of management also suggests an increased specialization of forestland use. Ownership of large blocks by industry led to the bundling of forests with different qualities. In some cases, environmentally sensitive forestlands with low productivity were ignored as the more productive sites were managed for timber, resulting in a set of de facto protected lands. The new model of forest investment—where the scale is smaller and more specialized and returns are defined by cash flows on a fixed term—provides no direct incentive to support this bundling. We expect that these nonproductive lands—often sensitive wetland areas or other special habitats—are likely to be split off to other owners. Will valuable ecosystem services be impacted?

Conclusions

All of the changes described in this article suggest an increasingly fluid situation for forestland and resources in the South. Long perceived as a sector for investing very patient, long-term capital, land and forest assets are becoming increasingly liquid. Not unlike other mature sectors of the economy, this increased liquidity is an outcome of increasing specialization within the forest products sector and a vastly expanded flow of information regarding asset values and markets. Loss of forestland and increasing fragmentation should be anticipated throughout much of the region.

Rapid change in the ownership and condition of forests places pressure on already scarce ecosystem conditions and services. Among these, rare forest types, including many wetland types, imperiled animal species, water quality, and recreation may be the most affected. Protecting and enhancing the flow of ecosystem services in the face of a rapidly changing forested landscape may define the greatest challenge for the resource management professions.

Anticipating change can help us plan for and respond to a different future. Anticipating forest loss, fragmentation, and ownership changes in the South raises three observations regarding potential responses. First, the fragmentation of the remaining large blocks of forest ownership will probably come as a one-time and irreversible event, and opportunities for protecting values in contiguous forests will shrink substantially in the next few years. Industry land sales provide a unique opportunity for conservation interests to partner with TIMOs to protect ecosystem benefits. Second, as the pace of change quickens, the need for timely and effective change monitoring grows. And finally, the effects of landownership changes on management and forest conditions, the structure and value of forests in a fragmented wildland-urban interface, and the impacts of forest loss and fragmentation on ecosystem services are unknowns that define an extremely important research agenda for natural resource science.

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David Wear is project leader of the Southern Research Station Economics of Forest Protection and Management unit in Research Triangle Park, NC.

For more information:
919–549–4011 or dwear@fs.fed.us



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