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 rapid—better 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 Data—Land 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. Data—Land Values-2 Source: Pulp and Paper North American Fact Book, 2002. San Francisco: Paperloop.com, 2003.

7. Data—Land 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 it’s 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. • It’s likely to be a major interest in the future, of society and private landowners.

15. Timber Data -1 • Look at Alabama—Forest 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 State’s 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, NC:USFS 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 • Alabama’s 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, we’ve been growing more than we’re 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 don’t 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 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. Old and New

25. 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 isn’t as relevant. Look at the Forest Service’s SFRA. Old and New-2

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 …” (P&P NA Fact Book, 2002, pp.62-63). • RISI (Resource Information Systems, Inc.) 13.3 mm acres of sales from 2000 through first 3 Q’s 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? • We’ve 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 laws—income and property—discriminate against corporate ownership. (double tax, no capital gains, increasing property tax pressure)

29. Categories of landowners:the players • Forest Industry (own land and manufacturing facilities) • Private individuals and groups, including farmers • Public—local, 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 aren’t 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 Prices—Hypothesis • 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 Prices—Hypothesis • From the mid 1970s (and before also), through the 1980s, the news in the trade journals was about mill openings and expansions—pulp 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 Prices—Hypothesis • These market dynamics we’re 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 isn’t 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 wildlife—flexible. • 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 doesn’t 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 we’re 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 • We’re 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 we’re saying today, but we know the future will unfold without regard to what we’re 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.