How do you make your forest profitable?

9 August 2016

Forests grow of their own accord, but they only provide good profits if they are well managed. At its best, forest management protects trees from environmental and market risks.

“In Finland, the number of trees and annual growth are at an impressive level,” says researcher Saija Huuskonen from the Natural Resources Institute Finland (Luke). According to Huuskonen, there are several reasons for the success of Finnish forests, such as their age structure and bog drainage. Praise should also be given to regular forest management.

However, forest management activities need to be increased if we want the productivity of our forests to continue. Based on estimates made by Luke, seedling stand management or first thinning has been neglected on an area covering up to 1.6 million hectares of forest.

“In the next five years, the number of seedling stands requiring stand management will be the same as the total number managed over the past 10 years. The same applies to first thinning,” Huuskonen says. She points out that the management of seedling stands and young forests pays off: trees grow to be larger and of better quality and therefore they yield better prices.

“Traditionally, forest owners have aimed to produce log wood, and this is also a good goal for the future. Pulp and energy wood will always be produced as a by-product. All in all, a well-managed forest provides forest owners with the widest variety of options,” Huuskonen says.

Young forests need tending

Being behind or in a hurry seem like odd concepts in forests where the cycle is at least 70 years. Does one year here or there really matter?

“The price of work rises quickly if you don’t tend to the seedling stands or first thinnings on time,” warns Anssi Ahtikoski, a researcher working at Luke. One way of improving your work motivation is using the Motti software that Luke provides free of charge. Ahtikoski uses the software to provide an example: if the average stem thickness of trees being removed from a seedling stand grows from 4.5 centimetres to 6.0 centimetres, the thinning costs will see a significant increase.

“A professional can fell a thinner stem with one slash, but a thicker stem has to be cut on both sides,” Ahtikoski explains.

A lush environment makes seedling stand management and first thinning particularly important, but also more demanding.

According to Huuskonen, many Finnish pine stands are located in areas that are too lush. Planting pines in lush areas was popular in the 1980s, and many forest owners are now suffering from the consequences in the form of very knotty trees.

“When it’s time for the first thinning of these pine stands, it’s perhaps worth considering whether there is any point in continuing if the stand will probably not provide any logs in the future,” Huuskonen says.

Moderate return on investment

Forests are a unique type of investment. Usually, assets continue to have market value after profits have been realised, but an even-aged forest ceases to provide profit for a long time once the final felling has been performed. However, forest owners can have a significant impact on the value and profit provided by their forest by focusing on forest management. Forest management has a particular impact on the growth rate, size and quality of trees, although the location and environment do set certain limits. The price of timber is also impacted by the size of the stand and the ease of felling.

“In an unmanaged stand with 8000 trees per hectare, even harvesting energy wood may prove to be unprofitable,” Ahtikoski points out. He believes the safest and most profitable alternative for forest owners is to try to achieve first-rate quality. “There will always be a demand for quality wood, even if the competition were to tighten.”

Despite the efforts of forest owners, the price paid for wood mainly depends on the general market situation.

“Returns on forest investments mainly vary due to fluctuations in stumpage prices. Forests can provide a real interest rate of 2–4 percent, even 6 percent in good areas, but this requires exceptional professional skills and a bit of luck,” Ahtikoski says.

Ahtikoski sees forests as a relatively safe investment despite the fact that the majority of the profits of a forest planted today will be obtained after tens of years, during which time the market situation will have changed several times.

While pulp mills are being developed into biorefineries, the EU is considering the role forests play as carbon sinks and whether forest owners could be given a monetary compensation for maintaining them. Ahtikoski finds it important that the entire life cycle of trees is taken into account in calculations.

“Forests bind carbon, but two-by-fours also replace concrete and iron. When an unmanaged forest grows old and begins to rot, it no longer retains carbon but becomes a source of carbon emissions. The biodiversity of the forest will increase, but this does not have a price tag yet,” Ahtikoski says.

Ahtikoski encourages forest owners to think about what kind of a forest they want to leave to the future generations.

“Investing in forests suits people who are willing to manage their assets in the long term.”

Thomas Freundlich

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