Woodlots as an Investment

From the Dec 19, 2016 Issue of Agri-News

Investing into forestry has some distinct differences from investing into agriculture or another business.

“The most important of these differences is the time horizon for investment,” says Toso Bozic, bioenergy/agroforestry specialist, Alberta Agriculture and Forestry. “From the initial investment, planting a new forest requires between 20 to 60 years to generate any net returns. During this time only a small fraction of the cost can be recovered. However, many landowners in Alberta have already grown trees with little or no input whatsoever.” 

A mature grown forest can provide many valuable products that can be harvested. These 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 specialty forest products like decorative ferns, mushrooms, herbs and medicinal products. 

“Many farmers and ranchers look to woodlots as one way to diversify their farming operation, while those who live in urban centers see woodlots as an opportunity to enjoy the outdoors and see the forestland as an investment. However, although the perception is changing, most landowners in Alberta still see their woodlot/forestland as nothing more than a timber source or a place for personal enjoyment, and not as an investment.”

Bozic suggests those looking to buy forested land should keep in mind the following:

  • Finding a forested property that you like might be not easy as buying agriculture land as location is crucial. The closer it is to large urban area the more expensive forest land it is. Whether you want to live on the land, or just use for other purpose, may impact your decision
  • Any current buildings on the site such as a house, barns, or fence will greatly affect the value of the forest property.
  • Ecological and environmental considerations include the soil type, age and type of forest, slope, water bodies, wildlife type and amount of wildlife using forest, road and trail access to various part of the property, fire risk, any conservation easement on land, and neighbouring land use practices.

“The difference between investing in agriculture land and already forested land is that the landowner doesn’t have any input costs as the land is already forested,” says Bozic. “The owner can also manage 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.” 

Like any investment timberland also carries risk. “There are three types of risk associated with forest investment. The first one is market fluctuation of wood and non-products. The second is the physical risks including fire, disease, insect infestation, and other natural disasters. The third is trading barriers and regulations.” 

Lastly, as with any house or property investment, a woodlot is subject to change in value. 

“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. Many investors can see the opportunity of investing in forestland for tourism, recreation, hunting, and other benefits.”

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