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Land Ownership Changes

Research into the economics of timber management has identified important distinctions between different ownership groups (e.g., Newman and Wear 1993, Pattanayak and others 2004). In particular, these studies have documented more productive management focus on forest industry lands compared to all other ownerships. As a result of investment patterns described in the previous section, the 20 percent of timberland managed by industry in the late 1990s contains more than 60 percent of the region’s plantations. In effect, management on industry lands has been the most responsive to timber scarcity signals since 1970.

Changes in the wood products sector since 1999 have initiated a restructuring of forest capital whose implications for timber supply are not yet understood. Forest industry ownership, which stood at about 40 million acres in 1999, may have fallen to about 20 million acres in 2005. An extension of ongoing trends and plans announced by wood products firms suggest that very little timberland may be owned by the forest products industry by 2010.

Sales of forest industry land may have several causes and implications. Some of these forests simply have much higher value in a developed use, and their sale is just a part of the general urbanization process described earlier. A recent study (Wear and Newman 2004) indicates that in 2002, about 6 to 7 percent of industry timberland in Georgia was in a land value class that could not be sustained by timber production alone, i.e., a conversion class. By the year 2010, 25 percent of Georgia timberland will be in the conversion class if the population grows as expected (fig. 44). These estimates are consistent with land use projections from the “Southern Forest Resource Assessment” (Wear and Greis 2002).

Who will own the timberland that is not converted to another use and how will that timberland be managed? Much of the most productive timberland is being sold to timber investment management organizations (TIMOs), which act largely as fiduciaries when timberland is used as an investment instrument. Many of these investments are held by pension funds and are tied to closed-end and other funds that tend to trade frequently. The implication of greater TIMO ownership seems to be a more rapid turnover in forest ownership and the potential for ongoing parcelization of timberland ownership into smaller sized properties.

TIMOs have strong incentives to maximize returns and will draw capital to forest investments in strong markets. It seems clear, however, that management will be characterized by a shorter time horizon and that timber inventory and timber supply could be less stable with this large-scale change in forest ownership.

Another implication of industry divestiture is the greater reliance by industry on timber produced by private landowners and the TIMOs. This could increase the price sensitivity of the timber owning sector to demand changes, increasing the volatility of timber prices. Furthermore, given that industry has historically accounted for a large share of the increase in pine plantation area, the divestiture of these lands by industry could foretell a continued lower rate of pine plantation growth. As Prestemon and Abt (2002) indicate, reduction in the rate of pine plantation expansion is connected to greater total forest losses in the long run.

Finally, we might speculate that the loss of industry ownership in the South could lead to reduced investment in timber growing research and development. The consequences of such a pullback are difficult to foresee but may leave the United States in a worse position to compete globally in the long run, if other countries maintain or increase their research into timber production technologies.