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Forestland As An Investment | |
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From the May 4, 2009 Issue of Agri-News | |
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"Investing in forestry has some distinctive characteristics unlike investing in agriculture or another business," says Toso Bozic, woodlot specialist/agroforester with Alberta Agriculture and Rural Development, Edmonton. "The most important characteristic is the time-horizon for investment. From the initial investment, forestry requires between 20 to 60 years to generate any net returns. And while during this time only a small fraction of the cost can be recovered, the trees grow with little or no input, whatsoever."
A mature grown forest can provide many valuable products that can be harvested. These products include: sawlogs for dimension lumber, high-value timber products (furniture-quality wood and veneer logs), wood fuel, wood for energy generation, wood for pulp and paper production, landscaping chips, wood shavings for animal bedding material, Christmas trees and some specialty forest products (decorative ferns, mushrooms, herbs and medicinal products).
"Many farmers and ranchers are now looking to woodlots as one way to diversify their farming operation," says Bozic. "While woodlots provide an opportunity to enjoy the outdoors, the forestland is an investment, a timber source and a place for personal enjoyment."
Woodlot landowners have considerable flexibility in managing how and when to sell their forest products. For example, when lumber prices are high, landowners can sell their logs for a premium but when prices are low, landowners can simply let trees grow and increase in value. Woodlot landowners also have an opportunity for wood value-adding and selling their lumber into the local farm community.
In the past 50 years, there has been a steady increase for the demand of wood and its products all over the world. At the same time, there is a decrease in the amount of land available to grow trees. As well as forest products, there are opportunities to invest in forestland for tourism, recreation, hunting and other environmental benefits such as carbon sequestration and environmental goods and services (EGS).
"There are several potential investment opportunities," says Bozic. "One unique long-term opportunity that can provide good return on investment, retain the value of the land and the timber on the land is called environmental goods and services (EGS). These EGS include one of the most important functions forests provide which is purifying drinking water for many communities. As society, we often overlook or don't put a dollar value on the forest's contribution to clean water in Canada."
Studies show a correlation between water treatment costs and the amount of forest cover in watersheds. Once such study, published in the American Water Works Association Magazine (Opflow Vol. 30, No. 5 May 2004), surveyed 40 similar water treatment plants by describing their watershed, treatment system and treatment costs. This study found that the operating cost decreased as forest cover in watersheds increased, for every 10 per cent increase of forest cover, the overall treatment and chemical cost decreased by approximately 20 per cent.
Managed woodlots provide cleaner and more reliable water flow, the costs of treating water from forested riparian areas is much lower than treating water from waterways without tree cover. Land use changes such as deforestation affect water quality and quantity and thus lead to higher water treatment costs. But improving land use practices by protecting watersheds and planting more trees these functions can be maintained or improved. Water from forested watersheds contains less silt than water from areas without trees and remains cooler and more conducive to supporting a wide range of fish and aquatic wildlife.
There are already cases where EGS are working. Some major urban centres in North America - including New York City - have recognized the benefits of investing in afforestation of riparian areas, greatly reducing the costs of water treatment and enhancing the quality and quantity of water that reaches treatment plants.
Like any investment, forestland also carries risk. There are three types of risk associated with forest investment:
- market fluctuation of wood and products
- physical risk which includes things such as: fire, disease, insect infestation, and other natural disasters, as well as trading barriers and regulations
- world wide market for EGS is currently not developed but that may change into future
"Each landowner needs to understand that a forest investment is a long-term investment, not just financially but also in the health and prosperity of future generations of landowners and Albertans," says Bozic. "In the end, it becomes clear that a forest doesn't only have an economic value, but also has social, religious, cultural and environmental values, and these are all long-term values."
For more information on woodlots, forested land and their management, visit Alberta Agriculture and Rural Development's website at www.agriculture.alberta.ca and search Woodlot Management.
Contact:
Toso Bozic
780-415-2681
The contents of this page are no longer available.
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For more information about the content of this document, contact Toso Bozic.
This document is maintained by Rita Splawinski.
This information published to the web on April 29, 2009.
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