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Timberland Investments

Investment is defined as the dedication of today’s capital to tomorrow’s production. In forestry, there are two principal types of investment. One is the investment of financial capital in forest establishment and direct management activities such as site preparation and pre-commercial thinning. The other is simply the decision to let forests grow. This latter type of investment in forest growing represents a much higher capital cost than direct investments (Wear 1994). Still tree planting provides a strong indicator of the degree of expansionary investment in the forest sector and therefore of how private landowners perceive future markets.

Planting in the South appears to be strongly influenced by market signals—i.e., anticipated returns to the planting investment (see Newman and Wear 1993). However, it has also been influenced by governmental programs that reduce the costs of forest establishment for nonindustrial forest owners. Federal programs that have encouraged tree planting on nonindustrial private forest lands with the objective of enhancing future timber supplies (for example, the Forestry Incentives Program) or to pursue conservation objectives through planting agricultural fields (for example, the Conservation Reserve Program). In addition, several states have employed similar tree planting programs for private land owners.

Tree planting in the southeastern US grew from essentially none in 1945 to an average of between 1.5 and 2 million acres per year in the 1990’s (Figure 41). The pattern of tree planting shows distinct spikes in the 1960’s and 1980’s corresponding to the Soil Bank and Conservation Reserve tree planting programs respectively. These programs were restricted to nonindustrial private forest lands. Except during these two periods, tree planting has been dominated by forest industry and concentrated on the 20 percent of timberland controlled by this ownership. In the period between Soil Bank and Conservation Reserve Programs the industry share of planting rose to about 70 percent of the total. Since the CRP program, industry planting has hovered around 50 percent of total planting.

Tree planting has two components. One is the replacement of harvested plantations. There is a strong incentive to replant harvested plantations since a decision to postpone planting after harvest allows for natural regeneration and therefore increased costs for any delayed planting. The other component is expansionary investment—that is, the establishment of new plantations from harvested naturally regenerated stands or agricultural fields.

Figure 41. Total area planted in trees in the US South, all ownerships (industry, nonindustrial private, and public) and the industry ownership (Sources: 1945-1999: Robert F. Moulton (2000 [compiled from annual USDA Forest Service tree planting reports; including estimates by J. Prestemon for industry (Arkansas 1954; Florida 1981; Georgia 1954, 1982; Louisiana 1954, 1981; Mississippi 1954; Texas 1981)]; 2000-2004: Steve Chapman, Georgia Forestry Commission (2005)).

By comparing tree planting with changes in the inventory of plantations in the South we can estimate the amount of expansionary investment implied by planting activities (Figure 42). Expansionary investment dominated planting through the Soil Bank period and up to 1970. Throughout the 1970’s and 1980’s, however, replacement investment far exceeded the amount of expansionary investment as the first wave of plantations came “on line” for harvesting. Expansionary investment started to grow again in the early 1980’s and reached about one million acres per year in the late 1980’s. It remained at this level through the 1990’s. Total tree planting fell by about 30 percent between 2001 and 2004, suggesting a reduction in the amount of expansionary investment, perhaps back to the levels observed in the late 1970’s.3

Investment levels correspond with market patterns described earlier. During the “Growth Phase,” between 1986 and 1998, landowners sustained the highest levels of market-driven investment both in terms of total investment and expansionary investment. With the onset of the “Adjustment Phase,” tree planting fell substantially from this elevated level. The amount of this decline is roughly equivalent to the level of expansionary investment, suggesting forest investment has fallen to a level roughly equal to replacement investment. At a minimum, we can say that expansionary investment was at relatively low levels in 2003 and 2004.

Because timber growing defines a very long production process, this long period of expansionary investment will likely expand the supply of timber for a long time to come. Even with the slow down in investment beginning in 2002 the supply of softwood products, especially softwood pulpwood, should continue to grow.

Figure 42. Total tree planting in the US South with estimates of both expansion and replacement planting (see Appendix A).

3 We do not have a definitive estimate of expansionary investment since 1999 because comparable inventory estimates of plantation area are not available. However, planting rates fell much more than the rate of harvest, indicating a strong contraction in expansionary investment.

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modified: 07-Feb-2017
created by: John M. Pye
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