Table Of ContentArchive Document
Historic,
Do assume
not content reflects current
scientific knowledge, policies, or practices.
United States Private Forest Investment
Department of
Agriculture
and Softwood Production
Forest Service
in the U.S. South
Rocky Mountain
Forest and Range
ExperimentStation
David N. Wear
Fort Collins
Colorado 80526
-<
General Technical
Report RM-237
USDA
Forest Service October
General Technical Report RM-237
Private Forest Investment and Softwood Production
in the U.S. South
David N. Wear, Research Forester
Southeasern Forest Experiment Station
«
1Station headquarters is in Asheville, NC. The authoris at the Station's Research Work Unitin
Research Triangle Park, NC.
Contents
Page
Historical Changes 1
Forest Production: Investment and the Input Side 2
Methods 2
Results 3
Forest Production: The Output Side 5
Productivity: Comparing Input and Output Measures 5
Forecasting Investment 7
Forecast Results 7
Conclusions 9
Literature Cited 9
Appendix A. Forest Capital and Forest Output Indexes 10
Appendix B. Projection Model 12
Private Forest Investment and Softwood Production
the South
in U.S.
David N. Wear
PreviousRPAassessmentsoftimberproductionhave lands managed by forest industries and by all other
placed high expectations on private forest lands in the private ownership groups separately. Previous studies
South (Haynes 1990). Inparticular, theyhaveanticipat- (e.g.NewmanandWear,inpress)haveshown,andthis
ed that production from these lands will continue to study confirms, that production behavior differs sub-
expand as harvests are reduced in other parts of the stantially between these two groups.2 The focus here
country, especially on public lands. Any sustained in- also is solely on softwood timber production.
crease in timber production, however, depends on in-
vestment in and the productivity of southern forests.
Changes
Thisreportexaminesthehistoryofprivateforestinvest- Historical
mentandproductionintheSouthfortwopurposes.One
SoftwoodproductionintheSouthchangedconsider-
is to define the aggregate effects of forest investment
over the past 40 years. The other is to develop invest- ablybetween1952and 1992.Thetotalareaofsoftwood-
ment forecasts consistent with historical patterns of producing forests declined, and the mix of plantation,
natural, and mixed pine forest types changed substan-
investment.
Investment generally is defined as the allocation of tially (Alig and Wear 1992). These changes reflect the
countervailing effects of active investment in forest
resources to future production. Accordingly, nearly
every activity in forest management, including the ab- production and reduction in the land area dedicated to
senceofactivity,canbeinterpretedastheoutcomeofan forest production. Also, the amount and mix of soft-
investmentdecision.Furthermore,activitieswhichcause wood forest products has changed. This section exam-
land to move into or out of forest cover influence the ines the effects ofthese various changes, and measures
resources dedicated to future production. Depending their combined influence on the region's capacity to
on the relative importance of these factors, which may produce softwood products.
Therearetwowaystomeasurethesizeofanyproduc-
increaseordecreaseforestassets,totalornetinvestment
may be either positive or negative. All of these factors tionprocess. Oneis tomeasuretheresources dedicated
need to be accounted for in defining the aggregate to production, in effect to measure the quantity of
inputs. In forestry, total inputs are partially defined by
effects of forest investment.
This report measures forest investment using an theextentofforestarea, forestconditions,andmanage-
approach that addresses its multiple facets. All the ment intensity. Changes in the total inputs to forestry,
influences previously mentioned are factored into the over time, define the net effects of forest investment.
Input growth indicates positive net investment; de-
calculation of a single index, called a "forest capital
index." This index provides a measure of how these clines inthequantityofinputsindicates disinvestment.
forceshaveinteractedovertheforestedlandscapeofthe The other approach is to measure the outputs of the
U.S. South. It measures how the total quantity of re- sector, in this case softwood pulpwood and sawtimber
sources dedicated to timber production has changed products. Output quantity provides an unambiguous
between 1952 and 1992. It also provides some insights measureofthecurrentlevelofproduction,butdoesnot,
into how the quality of these timber-producing assets alone, say much about the future of production.
has changed. 2Althoughdifferencesbetweenthesetwoownershipgroupshove
Thisanalysisofinvestmentfocusesexclusivelyonthe beenstudiedindetoil,relativelylittleattentionhasbeenpaidtotheir
interactionsatasectorallevel. However,recentfindingsregarding
private sectorintheU.S. South (public lands contribute
the structure oftimbermarkets (Murray 1992) indicate thatthere is
little to total production in this region), but examines the potential forstrategic interaction,
1
s
The input and output sides of forestry, however, examines whether investment activities actually have
shouldberelated;and,inthelongterm,shouldbalance. expandedthecapacityforsoftwoodforestproductionin
Comparing inputs with outputs can provide insights the region.
into how the productivity offorestry has changed over
time.
Methods
Forest Production: Investment and the Input Side Measuring the total resources dedicated to forestry
requires translating forest area and forest conditions
There are two types of inputs to forest production. intoa measure offorestcapital. This is donebytreating
Oneistheprimaryinputsofcapital,labor,andlandused each type of forest as a kind of capital asset with an
to establish new forests. The other is the growth of eventual maturity date. The value of each forest type
existingforests. Ineffect,forestsarecapitalassetswhich changes fromyeartoyear, reflectingbiologicalgrowth,
may be augmented either by investment (planting) or depreciation (through mortality or predation), taxes,
byphysical appreciation (growth). Forestcapital alsois and capital gains (or losses). Capital gains are deter-
subject to depreciation by predation and fire, or by the minedbychangesinthevalueofforestassetscausedby
conversion of land from forestry to other uses. In the changesinthemarketpricesofforestproducts.Thetotal
analysis that follows, net growth (or decline) in forest value of a forest asset then can be expressed using an
capital is measured by accounting for both primary or annual rent equal to the implied cost of holding the
grossinvestment,andcapitalappreciationanddepreci- stand for 1 year (essentially an opportunity cost). The
ation. Measuring gross investment is straightforward; annual rent of different forest assets, therefore, defines
but,measuringcapitalappreciationand depreciationis their relative productivity in financial terms. These
complicated by the variety and dynamics of forest relative productivities then can be used as a set of
conditions. weights for aggregating different forest assets into a
Previous studies of investment focused exclusively measure of total forest capital.
on gross investment in timber production in the South This measure defines the total capital input to forest
(Brooks 1985, Boyd 1984, deSteiguer 1984, and Cohen production in each year. For this study, the South'
1983) Withinthisliterature,specialemphasiswasplaced softwood-producingforestsarebrokendownintothree
.
on studying the influence of substantial government forest types (planted pine, natural-pine, and mixed
programs aimed at expanding forest production or pine-hardwoodasshowninfigure 1),andtheirapprox-
contractingagriculturalproduction,especiallyonhigh- imateageclassgroupings.Foreachforesttype/ageclass
ly erodible lands, using tree planting. These studies category,theannualforestrent,basedonforestproduct
generallyfoundthatprogramscauseforeststobeplant- prices etc., is computed for each year (1952-1992), and
ed, but fail to reach consensus on what the increased the rent-weighted forest capital is calculated. Year-to-
plantings mean for timber production over the long yearchangesincapitalvaluethenarecombinedwiththe
term. Other studies have examined whether planting cost of gross forest investment (planted acreage times
programs merely transfer planting expenditures from regeneration cost) to estimate changes in the resource
theprivatetothepublicsector(Leeetal. 1992),andhave input to forest production.
examined the distributional consequences of planting Forest capital may increase or decrease from year to
programs (Boyd and Hyde 1989). year,dependingontherelativeimpactsofappreciation
Unliketheprecedingwork,thisstudydoesnotfocus anddepreciationduringthatperiod.Togaugechangein
exclusively on gross investment and the impacts of input, forest capital is measured as an index number
policyongrossinvestment.Rather,grossinvestment,in withthebaseyearsetat1952,sothattheindexmeasures
the form ofplanting, is considered as only one contrib- proportional change from its value in 1952. This mea-
uting factor to net investment (or disinvestment) in sure of input is herein referred to as the "forest capital
forestproduction. Instead, thefocus here is onmeasur- index."Detailsonallofthesecomputationsanddatacan
ingchangeintotalforestinputsovertime,includingthe be found in Appendix A and in Wear (in press).
effects of physical appreciation and depreciation of Theforestcapitalindexmeasureshowtheamountof
forest assets. By focusing on net investment, this study resources dedicated to forest production has changed
over time. Additional insights can be developed by
2
A. Forest Industry Table 1.—Annual rates of change (percent) in acres offorest
types by ownership groups in the U.S. South, 1952-1992.1
100
(/>
0) 80- Foresttype Industry Other private Total
o
CD
o 60-
Natural pine -1.76 -1.88 -1.85
Mixed pine-hardwood +0.54 +0.59 +0.58
40- Pine plantations +8.05 +5.95 +7.06
Total +0.81 -0.66 -0.23
20
I I I I I I I I I I I I I I I I I I l | | h 'Computedbysolving: A52 (1 + r)]"2-l952 _ (where Atis
0 the acreage at time t) forr.
1952 1962 1972 1982 1992
comparing changes in the forest capital index with
Natural Pine ~*~ Planted Pine Pine / Hardwood ~°~ Total changesinthetotalareaofsoftwood-producingforests.
The difference between rates of change in capital and
landareameasuresa"capitalcompositioneffect,"which
B. Other Private defineshowtheaveragequalityofforestassets(ineffect,
thecapitabarea ratio) haschanged overtime. Forexam-
100
ple,ifthequantityofcapitalincreasesfasterthanthearea
of forest, this implies that the average quality of forest
land (in financial terms) has improved. This would be
the case if management was intensified on a constant
land base.
Results
Figure 1 shows howthe area ofsoftwood-producing
forest and the mix offorest types in the South changed
1992 between 1952 and 1992 (see Alig 1986, for a detailed
— discussion ofland use changes in the region). The total
Natural Pine Planted Pine Pine / Hardwood ~°~ Total area of softwood-producing forest types declined at an
average annual rate of 0.2% (see table 1 for rates of
C. Total Private change by forest types and total land area). However,
100 this aggregate decline masks an increase in the amount
offorestheldbytheforestindustry(+0.8% peryear)and
a> a countervailing decrease in forest area on all other
o
private lands (-0.7%). Aggregate changes also mask
CO
*o*— some shifts between forest types. The acreage of pine
plantations grew substantially on both ownerships.
CD
Withindustryandotherprivateownershipsexpanding
%
plantationareaataverageannualratesof+8.1 peryear
and +6.0% per year, respectively, the total area of pine
plantations in the South increased thirteen-fold be-
I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I
1962 1972 1982 1992 tween 1952 and 1992. Incontrast, thetotalareaofmixed
pine hardwood was relatively stable, implying that the
Natural Pine ~*~ Planted Pine ~"~ Pine / Hardwood ~°~ Total increase in planted pine was substantially offset by
declines in the acreage of natural pine. The area of
natural pine forest declined on both the industry own-
ership (-1.8% peryear) and theotherprivateownership
Figure l.-Area ofsoftwood-producing forests by foresttype and
ownership group (1952-1992). (-1.9% per year).
3
—
Theforestcapitalindex(table2)showsthataggregate Index (1952=1.0)
input, likerawforestarea, grewsubstantiallyonindus- 2~i
1.8-
try lands between 1952 and 1992. The total quantity of
inputs to forestry on this ownership increased at an
average annual rate of 1.14%, and exceeded the rate of
expansion in total forest area. The resulting positive
capital composition effect (+0.33%, table 2) indicates
thattheaveragequalityofforestassetsheldbyindustry
improved between 1952 and 1992. This reflects consid- 0.6-
erable growth in the proportion of forest lands under 0.4-
plantation management. 0.2-
On forests held by other private owners, however, Q—I—r i—i—i—i—i—i—i—i—i—i—i—i—i—i—n—i i i i i—i—i—i—i i i i—i—i—i—i—i—|—n—i r~
forest capital declined between 1952 and 1992 (-0.89% 1952 1962 1972 1982 1992
peryear). Furthermore,thisrateofdeclineexceededthe
rate of decline in the total area of forest land. The -+- Industry -- Other Private -*- Total Private
resultingnegativecapitalcompositioneffect(-0.23%per
year) indicates that the quality of forest assets also Figure2.-ForestcapitalindicesfortheU.S.Southbyownershipgroup
and in total (1952-1992). The indices have a base yearof 1952.
declined over the past 40 years. Although the area of
pine plantations increased, these investments did not the forest capital index by ownership (fig. 2) illustrates
fully offset strong declines in the natural pine type and the patterns ofchangebetween 1952 and 1992. Change
the net loss of pine-producing forest area. ontheotherprivateownershipcanbedividedintothree
The combined effect of net investment on industry epochs. During the 1950s, net investment was slightly
landsandnetdisinvestmentonotherprivatelandswas positive for the other private ownership. This, the only
an essentially constant level of forest inputs across the period of growth in forest capital for the ownership,
sectorbetween 1952 and 1992 (the middle line in figure coincides with substantial Soil Bank afforestation pro-
2). This indicates that, over this 40-year period, invest- grams. The second epoch, commencing at about 1960,
ments in forest plantings just offset the impacts of and continuing through the late 1970s, is characterized
harvesting, and land use and forest type changes, and by a sustained decline in forest capital. During this
thattotalinputstoforestrydidnotchangesubstantially. period, cost-share programs forforest planting were in
Instead, it shifted fromland-extensive management on place (theAgriculturalConservationProgramandFor-
otherprivatelandstomoreintensivelymanagedindus- estry Incentives Program); but, these were not strong
try lands. Also, countervailing capital composition enoughtooffsettheeffectsofland-usechange.Thethird
changes for the two ownerships net out to a small, but epoch is characterized by a generally stable level of
positive,shiftinassetqualityacrosstheprivatesectoras forest capital. In the last 5 years of the period however,
a whole. forestcapitaldeclinedslightly,whiletheareaofplanted
Average changes over the 40-year period provide a pine increased. This is explained by strong declines in
summary of investment history, but they also mask thereported areaofnaturalpine. However, thedatafor
someimportantchangeswithintheperiod. Thechartof this period, which coincides with the substantial Con-
servation Reserve afforestation programs, are prelimi-
nary, and considerable caution should apply to inter-
Table 2.—Annual rates of change for pine-producing land, forest pretations of these (1987-1992) results.
capital, and the capital composition effect in the U.S. South, by
ownership group (1952-1992). The forest capital index for the industry ownership
shows steady growth through the mid-1980s followed
byalevelingoffintheremainderofthehistoricalperiod
Quantity Industry Other private Total
(the same caveat applies to interpreting capital mea-
suresoverthelast5yearsoftheseries) Perhapsthemost
.
Total acres +0.81 -0.66 -0.23 striking aspect of figure 2 is that investment by forest
CFoarpeisttalcapital +1.14 -0.89 -0.15 industry is generally a mirror image of investment on
composition effect +0.33 -0.23 +0.08 other private lands (with the exception of the 1950s).
4
