---

United States

Department of

Agriculture

Forest Service

0

FGRI”,.&

Likelihood of Timber Management

on Nonindustrial Private Forests:

Evidence From Research Studies

Southeastern Forest

Experiment Station

General Technical

Report SE-60

Ralph J. Alig, Karen J. Lee, and Robert J. Moulton
March 1990

Southeastern Forest Experiment Station

PO. Box 2680

Asheville, North Carolina 28802
Likelihood of Timber Management on

Nonindustrial Private Forests: Evidence

From Research Studies

Ralph J. Alig

Research Forester/Project Leader

USDA Forest Service

Southeastern Forest Experiment Station

Research Triangle Park, NC 27709

Karen J. Lee

Economist

USDA Forest Service

Southeastern Forest Experiment Station

Research Triangle Park, NC 27709

Robert J. Moulton

Economist

USDA Forest Service

Washington, DC 20090
I
ABSTRACT

Research on timber management tendencies by nonindustrial

private forest owners, while sometimes conflicting, provides useful

information to support policy analyses of timber supply and

investment behavior. Numerous research studies regarding NIPF

tree planting, intermediate stand treatments, and timber harvesting

are reviewed. Conclusive research findings include that: (1) cost

sharing correlates with increased tree planting, (2) cost-shared

plantings are typically not liquidated when support payments end,

(3) technical assistance with harvesting tends to increase stumpage

revenues for owners and results in residual timber stands that are

in better condition, and (4) technical assistance is correlated with

increased harvesting.

The degree to which nonindustrial private forest

(NIPF) owners manage their land for timber production

is a key question in assessing future timber supplies.

Information on management by NIPF owners is also

important in analyzing policy options related to issues

such asglobal climate change, wildlife habitat, and

soil protection. Although much research has been

conducted on NIPF timber management and response

to government policies, the results sometimes appear

to conflict and do not provide a clear understanding

of the factors affecting NIPF timber management.

These studies contain a great deal of information,

however, and we can draw limited conclusions

regarding timber supply and investment behavior.

The importance of NIPF timber and the identification

of significant investment opportunities on NIPF lands

(USDA Forest Service 1988, in press) indicate the

need for continued and expanded research in this

area.

This paper reviews previous research on NIPF timber

management behavior, including timber harvesting,

in the United States. It synthesizes findings on

availability of timber from NIPF land and the effects

of government programs in augmenting supplies.

One aspect of this issue- how NIPF owners respond

to timber-related market signals- is particularly

significant because recent timber assessments by

the USDA Forest Service (in press) project increasing

real timber prices. Response to market signals is

also important because government programs are

often designed in response to perceived market

imperfections (Cubbage and Haynes 1988).

This synthesis of research results is intended to

support analyses of the potential for increasing timber

supplies from NIPF land. The review does not include

studies on the social efficiency of policy instruments.

Instead, it concentrates on studies designed to isolate

determinants of timber management behavior by

NIPF owners. The paper is organized into six sections.

The first discusses NIPF research in general; the

next three sections discuss NIPF planting, intermediate

treatments, and harvesting; the following section

examines other considerations for research into NIPF

behavior; and the final section states conclusions

and directions for further research.

Overview of NIPF Research

Previous research into timber management decisions

by NIPF landowners ranges from survey-based studies

of owners and their forests to sophisticated models

for testing hypotheses about landowner behavior.

The effects of stumpage prices and government

programs on the timber supplied by NIPF owners

have been examined by empirical tests of hypotheses

as well as through descriptive surveys (Fecso and

others 1982; Royer 1987). Landowner and tract

characteristics have also been examined to facilitate

understanding of the importance of other market

and nonmarket goods (recreational value) on timber

management decisions (Binkley 1981). Some researchers have used statistical methods to categorize

NIPF owners according to the emphasis on timber

management, based on owner characteristics and

attitudes as well as land characteristics (Greene and

Blatner 1986; Kurtz and Lewis 1981; Thompson and

Jones 1981; Young and Reichenbach 1987). Tax

incentives and technical assistance have often been

examined through use of legal research and descriptive surveys (Siegel and Hickman 1988), but several

recent empirical tests of hypotheses have been

undertaken (Chang 1983; Cubbage and others 1985;

Max and Lehman 1988; Skinner and Klemperer 1989).

Although numerous approaches have been used in

studying NIPF behavior, the following sections

concentrate on those that attempted to surface or

isolate determinants of timber management applications. Most of the many surveys of landowner behavior

conducted since the 1940’s have profiled the characteristics of owners and their tracts of land (Fecso

and others 1982). They usually have not tried to

simultaneously explore the effects of markets, policies,

and owner characteristics.
Surveys of NIPF owners have described characteristics, activities, attitudes, perceptions, and intentions

of owners, as well as characteristics of their forest

holdings. Differences in sampling basis and/or

geographic coverage complicate comparisons of

results, but several general findings have surfaced:’

1. NIPF owners and forest holdings are diverse,

both within and across regions.

2. Landowner intentions vary widely within and

across regions.

3. NIPF owners are numerous, and many are

absentee owners.

4. NIPF owners are older, on average, than the

general population.

5. The turnover rate of owners is high relative to

the rotation length in forestry, and landowners’

intentions often change over time.

6. Many NIPF owners do not cite timber production

as one of their primary land management goals.

7. Data from Forest Inventory and Analysis surveys

indicate that NIPF owners do harvest significant

volumes of timber. Historical rates of harvest (removals

as a percentage of timber inventory) are comparable

for industry and NIPF owners in the South.

Because NIPF owners are heterogeneous, the

summary of survey findings reinforces the caution

that only general and qualified observations can be

offered when viewing the class as a whole. Thus,

findings that are reported should be extrapolated

only with great caution.

In analytical studies, two basic theories have been

used to develop and test hypotheses about NIPF

investment behavior for testing: utility and profit

maximization. NIPF owners select among timber and

nontimber opportunities to maximize perceived utility.

Both financial and nonpecuniary benefits from land

management are considered. The utility maximization

assumption has also been extended to account for

the infrequency of transactions (Rosen and others

1989). A profit-maximizing construct views the

landowner as a firm and the forests as a factor of

production.

Some differences in NIPF studies stem from the type

of data used and the varied definition of the dependent

variable representing a forest management practice.

Conclusions about a planting subsidy, for example,

may depend on whether the dependent variable is

total acres planted or unsubsidized acres planted.

Two general types of data have been used: microlevel

data derived from owner surveys such as Boyd (1984)

or data aggregated at the regional, State, or national

level such as de Steiguer (1984). Also, studies have

used time-series (de Steiguer 1984) cross-sectional

(Royer 1987) or pooled cross-sectional and timeseries data (Alig 1986).

Many independent variables have been tested in

relation to determinants of NIPF behavior. Most recent

research on NIPF supply has included prices and

government programs as independent variables.

Other variables examined include reforestation costs,

interest rates, income, age, occupation, and tract

size.

Landowner decisions that concern us in this paper

are investment or disinvestment choices. Such

decisions have typically been researched as: (1) the

decision to invest in forest management, often

centering on regeneration, which relates to long-term

timber supply, and (2) the decision to disinvest

(harvest timber), which relates to short-term timber

supply (Alig and others 1984). The distinction is

important because the two sets of decisions may not

be directly linked, temporally or spatially, and the set

of determinants may be different for disinvestment

than for investment decisions. However, there is

often an indirect linkage-a decision to reforest may

require that a previous decision to harvest has been

made.

NIPF Planting Activities

Historical Tree Planting

Prior to the mid-1930’s, only a few thousand acres of

NIPF land per year were planted or direct-seeded to

trees. Planting by the Civilian Conservation Corps

led to an increase in areas reforested during the late

1930’s, but tree planting programs nearly stopped

during World War II. NIPF planting and seeding efforts

rose to over 1 million acres per year during the peak

of the Soil Bank Program in the late 1950’s (fig. 1).

1 Based in part on findings in an unpublished report by Jack P.

Royer, 1979. A report to the Forest Productivity Committee of the

Forest Industries Council. Duke University, School of Forestry and

Environmental Studies, Durham, NC.

2
Thousand Acres

1800

1600 -

1400 -

1200 -

1000 -

800 -

600 -

400 --

01”” I ““I““I““I““I““I““I”

1950 1955 1960 1965 1970 1975 1980 1985

Year

Figure 1 -Nonindustrial private forest planting, 1950-1988. (Source: Analysis of Timber Situation, USDA Forest

Service; Annual Planting Reports, USDA Forest Service.)

Following a decline after the Soil Bank Program,

NIPF reforestation has increased since the mid-l 970’s,

with accelerated rates since the early 1980’s. This

same period saw the expansion of State and Federal

incentives, including cost-share programs, reforestation tax credits, and forest management assistance

programs, NIPF planting in recent years, boosted by

the Conservation Reserve Program (CRP) authorized

in the 1985 Food Security Act, has reached record

levels, once again surpassing over 1 million acres

per year. As in earlier times, most of this tree planting

has been in the South. Spikes when plotting trends

of NIPF tree planting correlate with major subsidy

programs such as the Soil Bank or CRP.

About half of the acres planted by NIPF owners have

been done under cost-sharing programs (Royer and

Moulton 1987; USDA Forest Service, in press). The

amount of planting done with technical assistance

alone, not using cost sharing, is not known but has

been estimated to be between 40 and 60 percent of

the non-cost-shared acres. This implies that only 20

to 30 percent of NIPF planting is accomplished without

any form of government assistance, cost-sharing,

and/or technical assistance. Although unassisted

planting has been increasing in recent years, few of

the studies have included this time period and the

reasons for the increase are uncertain (USDA Forest

Service, in press).

3
Discussion of Research Studies

NIPF tree planting relates to supply by contributing

to the growing stock available for long-term supply.

Several studies have found a positive relationship

between available growing stock (inventory) and

timber harvested, indicating that planting may have

an effect on short-term supply as well as on long-term

supply (Adams and others 1982; Newman 1987;

Wear and Newman 1989). The response of NIPF

owners to market signals can be viewed in terms of

response to prices and costs. While owners have

not been shown to respond to prices when planting,

research suggests they do respond to costs. The

confusing results here tend to imply a theoretical or

data problem, or may imply that landowners with

relatively high discount rates respond within a short

planning horizon. Government programs affect the

number of acres planted by NIPF owners.

Previous research on planting decisions by NIPF

landowners indicates a weak or nonexistent response

to stumpage prices, as represented by both current

prices and expected prices (table 1). Alig (1986)

Boyd (1984), Brooks (1985), de Steiguer (1984)

Royer (1987), Royer and Moulton (1987), and Royer

and Vasievich (1987), using different approaches

and different data sets, did not find stumpage price

to be significant. Cohen (1983) and Hyberg and

Holthausen (1989) did find stumpage price to be

significant in the decision to plant. The finding by

Hyberg and Holthausen (1989) is even more unusual

when it is noted that sawtimber prices were significant

in Georgia in this study, while pulpwood prices were

insignificant. In tests where both sawtimber and

pulpwood prices were used, coefficients for variables

representing pulpwood prices were larger than those

for sawtimber prices, although neither coefficient for

price variables was statistically different from zero

(Royer 1987; Royer and Vasievich 1987). The price

data used in all studies were aggregate regional

data.

A second aspect of the market response of NIPF

landowners can be examined by looking at the

response to variations in reforestation costs and

interest rates, the latter of which are considered as a

proxy for the cost of time. Increasing reforestation

costs were found to reduce the acreage planted or

the probability of planting by NIPF landowners (Brooks

1985; Hyberg and Holthausen 1989; Royer 1987;

and Royer and Vasievich 1987). A negative effect

would indicate a reluctance by NIPF owners to incur

the upfront costs of reforestation. Royer (1987) posits

that a high owner sensitivity to cost, coupled with

effectiveness of technical assistance, implies that

professional assistance from private or public foresters

aimed at low-cost reforestation alternatives would

seem to pay high dividends. Costs were not found .

significant in studies by Royer and Moulton (1987) or

Cohen (1983) but these results were not discussed

Tablel-Sumxy of tree planting research on no-trial private forests

Variables affectincf tree Dlantim decision

Price &for. Cost Tax Tech. Interestrate Farm

wsearcher sawtimber FulpJnod costs share incentives assist. short I0ng Inazane oazup. Size

Alig (1986) 0 + +

Brooks (1985) 0 +

Cohen (1983) + 0 + 0

de Steiguer (1984) 0 +

Hykeq & Holthausen

(1989) + + 0 0 0 0

Fc0mmaI-dothex-s

(1987) +

Royer (1987) 0 0 + + + 0 0

Royer & Moulton (1987) 0 0 0 + + + + 0

Royer & Vasievich (1987) 0 0 + + 0

Variablestestedandsignificantare represen~by(+)and(-);thosetestedandinsignificantarerepresentedby

(0) * only selected indepzndentvariables mybedisplayed for canparisonpxpcses for scm studies.

4
in those study reports. The reforestation cost data

used in all studies were regional costs, derived from

records of the 1982 Forestry Incentives Program

(FIP) or from southwide surveys.

Interest rates represent another cost to the landowner.

In a study by Miranda (1988) both long-term and

short-term interest rates (government bond rates

and 3-month Treasury Bill rates) were highly significant

in planting models. In this study the short-term rates

represented the opportunity cost of investing in

forestry, while long-term rates represented the use of

forestry as an inflationary hedge. The effect of interest

rates on investments in forestry was also examined

by de Steiguer (1984) and Cohen (1983). De Steiguer

(1984), however, found no significant effects using

Treasury Bill rates and a geometrically distributed

lag, and Cohen (1983) found no effects using a

lo-year corporate bond rate.

Regional price and cost data were used in all of the

studies, even those in which the forest management

data related to individual landowners. One problem

with this data is that regional prices may not reflect

what a landowner received or was offered for the

timber. A second concern is whether current or lagged

prices adequately represent an NIPF owner’s expected

revenues from forest investment activities. In the one

case where price expectations were explicitly modeled,

stumpage price was not significant (Brooks 1985). If

these prices or proxies do not reflect owner expectations, then conclusions regarding the effects of prices

on planting are rendered even more tenuous.

The second explanation could be that landowners

have short planning horizons and are less concerned

with the returns from planting, while responding

more strongly to current costs. The lack of response

to stumpage prices, combined with the stronger

(though insignificant) response to pulpwood prices,

and the negative response to reforestation costs

indicate that NIPF owners more strongly discount

future revenues than immediate costs. Stumpage

prices, which occur farther out in the rotation, appear

to be discounted more, particularly relative to input

costs, which are more immediate and more easily

compared with alternative rates of returns for capital

funds.

Recent studies have generally concluded that the

price of stumpage has little influence on NIPF planting

rates, although numerous studies indicate that

government programs have significant influence.

Current programs include Federal cost sharingthrough the Forestry Incentives Program (FIP), the

Conservation Reserve Program (CRP), and the

Agricultural Conservation Program (ACP) -and State

cost sharing, public assistance foresters funded by

both State and Federal governments, and reforestation

tax incentives. Past programs affecting NIPF landowners include the Soil Bank Program and Federal capital

gains tax incentives.

Researchers reporting positive effects of cost-share

programs on planting decisions by NIPF landowners

include Alig (1986); Boyd (1984); Brooks (1985);

Cohen (1983); Hyberg and Holthausen (1989); Royer

(1987); Royer and Moulton (1987); and Royer and

Vasievich (1987). The variable representing cost

sharing was significant in all cases, including those

in which a dummy variable representing a knowledge

of cost-sharing availability was used. In one study,

the effects of the different programs were isolated,

and both ACP and FIP had a positive influence on

reforestation (Cohen 1983).

Regardless of their financial position, landowners

respond positively to cost sharing. Royer (1987)

examined the effects of knowledge of cost sharing

by owners with incomes above and below $25,000

per year and found this variable significant at both

income levels. Whereas NIPF studies typically have

not investigated the demand for different degrees or

percentages of cost sharing, Romm and others’

(1987) results indicate that a reasonable reduction in

cost-sharing percentage may not reduce the use of

such forestry incentives. Research has also shown

that government cost-sharing programs are focused

on more productive land, where potential yields and

returns are high (Mills and Cain 1979; Risbrudt and

others 1983).

Several studies have examined the capital substitution

issue, but results have been inconsistent. Capital

substitution occurs when government payments

merely substitute for private investment that would

have occurred anyway. De Steiguer (1984) found no

significant correlation between government payments

and non-cost-shared or autonomous reforestation

investment.* However, Cohen (1983) concluded that

a significant amount of substitution was occurring.

While not specifically testing capital substitution,

Royer (1987) concluded from his tests that significant

substitution was not occurring. Brooks’ (1985) findings

regarding strength of cost-sharing coefficients also

suggest that much of the effect is additive, such that

cost-sharing serves as an inducement to plant trees.

Yoho and James (1958) indicated that ACP payments

had a strong effect in stimulating forestry practices

in Michigan. The results on this issue are not

conclusive.

2 Correlations reported throughout the paper refer to ones of

statistical significance.
Other government programs that are provided to

NIPF landowners include technical assistance and

tax incentives. Several recent studies that explicitly

modeled the effects of technical assistance on the

reforestation decision found that landowners who

received technical assistance in harvesting were

more likely to reforest than owners who did not get

assistance (Boyd 1984; Royer 1987; Royer and

Moulton 1987). The effects were stronger among

landowners with incomes greater than $25,000 per

year (Royer 1987). Royer and Kaiser (1985) reported

that investments in pine regeneration increased

markedly when professional foresters were retained

by NIPF owners, but that professional foresters were

consulted on less than 40 percent of the land

harvested.

Three studies were unable to support the hypothesis

that use of technical assistance significantly increased

planting. Hyberg and Holthausen (1989) did not find

technical assistance to be significant in affecting

reforestation, which is somewhat surprising since

technical assistance is used with cost sharing and

cost sharing was significant in this study. Skinner

and Klemperer (1989) report that, within the range of

the data gathered, variation in technical assistance

did not prove to be a significant predictor of NIPF

tree planting accomplishment in the South. Hodges

(1989) evaluated determinants of forest management

investments and found that a technical assistance

variable for public foresters was not significant for

either the Southeast or Midsouth regions, but that

private forester assistance was a significant variable

for the Southeast. No studies have been conducted

to assess the effects of technical assistance alone.

Cost sharing and technical assistance occur together

for government-subsidized tree planting, and thus

separating out the influence of each is difficult.

Tax incentives significantly increased the probability

of planting by NIPF owners in one study (Royer and

Moulton 1987). Tax incentives were considered as

one activity and were not broken out by type

(reforestation credit or amortization) or by jurisdiction.

In an empirical analysis of the effects of the capital

gains tax on reforestation, Chang (1988) found that

changes in capital gains taxation did not significantly

affect reforestation behavior. Guertin and Rideout

(1987) and Murray (1988) analyzed the recent changes

in Federal tax laws and found that the new laws

meaningfully reduce the expected returns from

reforestation. Actual landowner response to the recent

tax changes is not known, The few empirical studies

in this area do not permit definitive conclusions about

effects of tax incentives on investment.

Other influences on planting include personal income,

occupation, and tract size. Most studies that included

personal income found it to be positively correlated

with reforestation (de Steiguer 1984; Romm and

others 1987; Royer 1987; Royer and Moulton 1987;

Royer and Vasievich 1987) except Boyd (1984) and

Hyberg and Holthausen (1989) did not find a

significant correlation. Earlier landowner surveys had

indicated that planting was affected by owner

occupation. However, most recent studies did not

find a significant difference in planting rates or

probabilities between farmers and nonfarmers (Boyd

1984; Hyberg and Holthausen 1989; Royer 1987;

Royer and Moulton 1987; Royer and Vasievich 1987).

Summary of Research Results

Previous research on planting behavior has led to

several conclusions, but many questions remain

unanswered. Government programs correlate with

increased planting by NIPF owners, increasing

potential future timber supply. Cost-sharing programs

increase the probability of planting, and the land that

is planted is above minimum program standards.

Landowner income is highly correlated with increased

planting. The questions that have not been answered

conclusively include the effects of timber prices on

NIPF investments in planting, the effects of technical

assistance alone, the effects of tax incentives, and

the substitution of public for private investment funds.

Intermediate Treatment Activities

Historical NIPF Intermediate Treatments

Intermediate stand treatments such as thinning and

release of crop trees could increase yields on an

estimated 20 million acres of NIPF land (USDA Forest

Service, in press). However, few NIPF acres receive

intermediate treatments (fig. 2). In most years since

1968, the annual treated acreage has ranged from

approximately 250,000 to 425,000 acres. Even on

land that was planted using cost sharing, several

studies show that followup treatments are needed. In

a review of plantations established under the ACP

(Kurtz and others 1980) and the Soil Bank Program

(Alig and others 1980) over one-third of the planted

stands needed thinning to correct for overstocking

or to prevent the spread of disease.

Discussion of Research Results

Two studies at the State level of the use of intermediate

treatments by NIPF owners showed that owner

characteristics and attitudes were more significant

than either output (stumpage) price or income in

predicting use of intermediate treatments in forest-land
Thousand Acres

600

h

1968- 1972 1976 1980

Year

1984 1988

Figure 2-Nonindustrial private forest timber stand improvement, 1968-l 988. (Source: Analysis of Timber Situation,

USDA Forest Service; Annual Planting Reports, USDA Forest Service.)

management. In one study, Boyd (1984) included

planting along with intermediate improvements as

timber stand improvements. Boyd (1984) analyzed

North Carolina data and Holmes (1986) analyzed

Connecticut data, and both found tract size to be

significantly and positively correlated with the decision

to apply intermediate treatments. Knowledge of cost

sharing was found to be significant by Boyd but not

by Holmes, but Holmes did find technical forestry

assistance to be significant. Price, income, occupation,

and distance from tract were not significant, whereas

education, previous harvest activity, use of technical

assistance, and wildlife concerns were significant

and positive (Holmes 1986). Again, use of current

prices to represent expected timber returns may not

adequately reflect owners’ expectations. The likelihood

of an owner improving a stand decreased as owner

age increased. Holmes also found that owners often

improved wildlife or recreation values while they

were improving timber values.

Summary of Research Results

Research results on the likelihood of NIPF owners

applying intermediate timber management treatments

are more limited than those for forestation and

harvesting. Available findings for two State-level

studies suggest that owner characteristics and

management concerns are more important than

expected stumpage prices in the decision to apply

intermediate treatments. The limited number of studies

addressing these questions permits no definitive

conclusions about correlation of intermediate treatment activities with changes in costs or stumpage

prices.
NIPF Harvesting Activities

Historical NIPF Harvesting

Harvests from NIPF lands have constituted from 47

to 52 percent of the total U.S. timber supply since

1950. In 1986, the NIPF percentage of total U.S.

softwood harvest was about 40 percent, while NIPF

ownerships contain about 30 percent of the softwood

timber inventory (USDA Forest Service, in press).

NIPF’s share of hardwood harvest was approximately

75 percent, compared with their stocks or timber

inventory comprising about 70 percent of the total

hardwood inventory. This indicates that NIPF land

has supplied a greater proportion of timber harvest

per unit of timber inventory than some other ownerships. Harvests by NIPF owners are shown in figure3.

Discussion of Research Results

Timber harvest from NIPF lands contributes to

short-term timber supplies, although harvest methods

resulting in higher quality residual stands can also

contribute to long-term supplies. As was the case for

planting, conclusions regarding market responses

are limited. However, general conclusions on the

effects of government programs on supplies can be

made, including the effects of technical assistance

on residual stands and timber revenues.

Effects of stumpage prices on harvesting have been

shown to be generally positive and significant.

According to studies by Adams and Haynes (1980)

Binkiey (1981) Boyd (1984) and Holmes (1986)

increases in stumpage prices result in increases in

Million Cubic Feet

IO

8

6

1952 1962 1970 1976 1986

- Softwood ---A- Hardwood -+%- Total

Figure 3- NIPF growing-stock removals, 1952-l 986 (Periodic). (Source: 1989 RPA Assessment Data Base, USDA

Forest Service.)
l%le 2--sUmnaryofharvesting reseaxh on nonindustiial private forests

Variables affectimtbberhamestimdecision

Refor. Tech. cust Tract Fann

Price costs assist. share Inome size ==P* Education

Adams & Haynes (1980) +

Binkley (1981) f + + +

Boyd (1984) + + 0 + + +

Holmes (1986) + + 0 +

Hykeq & Holthausen

(1989) + + + - 0 +

Wallace & Silver (1983) 0

Variablestestedandsignificantare represen ted by (+) and (-); those tested and insignificant are

representedby (0). Only selected irx%peMentvariablesmaybedisplayed foraqarison for saw stulies.

harvesting by NIPF landowners (table 2).3 One study

found that price increases reduced the probability of

NIPF harvesting (Hyberg and Holthausen 1989). This

is the same study that found price significant in

planting; contrary to all of the other planting studies.

Some research also indicates that NIPF owners

harvest more in response to nominal prices than to

real prices (Binkley 1981; Holmes 1986). As Holmes

indicates, this may indicate a lag in realized price

inflation by NIPF owners.

These results should be interpreted with caution

because of necessary assumptions regarding representations of price data, a situation similar to the

analysis of planting behavior. Again, regional price

data were used to represent actual landowner returns

from a harvest.

The main government program affecting NIPF harvesting activity is the provision of public technical

assistance foresters. Use of these foresters by

landowners has been shown to be highly correlated

with the probability of NIPF harvesting (Boyd 1984;

Boyd and Hyde 1989; Holmes 1986; Hyberg and

Holthausen 1989). Technical assistance is provided

through State Foresters and supported with State

3 Newman’s (1987) econometric analysis of the U.S. South’s

softwood stumpage market confirmed the complementary role of

solidwood in pulpwood supply that had been reported earlier in

Sweden (Johansson and Lofgren 1985). Newman did not separate

out NIPF owners, but his results lend support to results in earlier

studies (e.g., Adams and Haynes 1980) pertaining to inelastic

price elasticies in stumpage supply equations based on existing

data.

and Federal funding. The extent of assistance differs

by State; for example, only price information and

referral services are offered in Florida, while timber

marking on small tracts is provided for a nominal fee

in Georgia and Kentucky. Holmes (1986) notes that

caution should be used in interpreting the results of

the effects of technical assistance on harvesting.

Holmes states that an increase in the number of

foresters providing assistance will not necessarily

lead to an increase in harvesting, because joint

demands for technical assistance and harvesting are

derived from demands for wood products.

Technical assistance leads to higher current returns

and higher future revenues (Budelsky and others

1989; Bullard and Moulton 1988; Cubbage and others

1985; Henly and others 1988a; Hubbard and Abt

1988; Jackson 1988). Hubbard and Abt analyzed the

differences between public forestry assistance and

private consulting assistance but did not find any

differences in harvest revenues. They concluded that

the existing system of public foresters and consulting

foresters was workable because each served a

different set of landowners. Providing public forestry

assistance results in a welfare transfer from taxpayer

to timber owner. Such assistance, however, has high

benefit/cost ratios both for the individual landowners

and for society (Cubbage and others 1985). Jackson

(1988) found in a study of Montana owners that

users of technical assistance were more likely to

employ Best Management Practices.

9
Cost sharing reduces reforestation costs, resulting in

shorter optimal economic rotations, and possibly in

increased current harvest levels. (There is no direct

cost sharing provided for harvesting activities.)

Wallace and Silver (1983) specifically examined the

rotation question and were unable to demonstrate

statistically that FIP had any effect on annual removals

or annual growth in the coastal plain of Georgia.

These authors noted, however, that the short time

period between the start of the program and their

examination would cast doubt on their results. Two

other studies failed to detect a correlation between

cost sharing and harvesting (Boyd 1984; Holmes

1986). Hyberg and Holthausen (1989), on the other

hand, found that the knowledge of cost-sharing

programs was positively correlated with an increase

in the probability of harvesting by NIPF owners.

One study shows that earlier cost-sharing programs

contributed to potential amounts harvested by

increasing timber inventories, particularly in the South

(Alig and others 1980). Reviews conducted in 1976

and 1979 of the cost-sharing programs showed that

89 to 90 percent of the ACP and FIP plantings were

retained well after payments had ended, indicating

that most of the timber will be available to contribute

to future harvests (Alig and others 1980; Risbrudt

and others 1983). In addition, Alig and others found

that 74 percent of the land that was not retained in

plantations from the ACP program of the 1960’s

contributed harvest volume when the land use was

altered.

Researchers have also examined effects of landowner

income and education, occupation as a farmer, and

tract size on harvesting rates. The results show that

income is a significant factor affecting the harvesting

decision. In the Northeast and in the Southeast,

higher income owners are less likely to harvest timber

than are lower income owners (Binkley 1981; Holmes

1986; Hyberg and Holthausen 1989). Higher education, which may be highly correlated with income,

also appears to be negatively correlated with harvesting (Binkley 1981; Boyd 1984).

Tract size strongly influences the practicality of forest

treatments, so subdivision of tracts to provide vacation

property can be expected to increase property

maintenance costs and reduce harvesting (Healy

1985). Smaller parcels are less likely to be harvested

than are larger parcels (Binkley 1981; Boyd 1984;

Holmes 1986). A survey of forest-land owners in

New England revealed a larger average size of forest

holding for owners who harvested timber (Kingsley

1976). In only one study, using owners in Georgia,

was tract size found insignificant (Hyberg and

Holthausen 1989).

Among NIPF owners, farmers are often considered

to be more responsive to pecuniary opportunities

than are nonfarmer NIPF owners, and many surveys

separate the two ownership types. The proportion of

timberland owned by farmers has been decreasing

for several decades (Sheffield and Knight 1984),

which may affect timber supply if farmers are indeed

more likely to harvest timber from their lands. Research

by Binkley (1981) Boyd (1984), and Hyberg and

Holthausen (1989) indicates that farmers responded

more strongly to timber prices and’are more likely to

harvest than nonfarmers.

Summary of Research Results on Harvesting

Relatively few studies have empirically examined the

determinants of harvesting by NIPF owners. Studies

have been conducted at a State level, and the question

of the exact nature of short-run timber supply relations

for NIPF landholdings has not been conclusively

answered. In four out of five empirical studies, prices

were positively correlated with the probability of

harvesting, but the results must be viewed cautiously.

Larger tract size and farm occupation were positively

correlated with increased harvesting, while higher

personal income was negatively correlated. Most

empirical studies indicate positive effects of government programs on harvesting and on short-term

supply. Use of technical assistance is highly correlated

with increasing harvests and also results in better

residual stands and higher owner revenues. The

effects of cost sharing and tax incentives have received

less empirical attention, and not enough is known to

draw definitive conclusions.

Other Considerations in NIPF Research

Surveys, studies, and analyses have revealed much

about NIPF owners, their timberland, and their timber

management. Notable contradictions and inconsistencies across studies, however, demonstrate that

analysts need much more information to confidently

project changes in aggregate timber management

and timber supplies. Several authors have drawn

conclusions that extend beyond their analyses, while

others have faced theoretical, modeling, and/or data

limitations. These limitations should be considered

carefully when planning research into NIPF behavior.

Several of the most important considerations within

the context of this paper are discussed below.

10
Theoretical Assumptions

The diversity of NIPF timber producers discourages

the use of mainstream economic analysis in studying

timber markets. NIPF landowners have a broad range

of objectives for managing a variety of forest types

and forest uses. Because standard methodology in

applied economics relies on consistent objectives

and technologies across producers for aggregating

to the market supply level, more precise timber supply

models will require innovative methodologies to

address these NIPF issues.

NIPF behavior has increasingly been modeled in a

utility-maximizing framework, as compared with a

profit-maximizing one. One key difference is the

significance of nontimber goods and services in a

landowner’s decision to implement certain land

management practices. The value of nontimber

outputs relative to timber products seems to be

growing as society becomes more affluent.

Analysts have often assumed that NIPF owners have

full information about prices, costs, and yields (Larson

and Hardie 1989). Reason suggests great uncertainty

created by forest hazards, volatile end-product

markets, the diversity and changing composition of

landowners, and changing policy environments.

Forest investment analysis under uncertainty has

recently been reviewed by Cathcart (1988). The

theory has yet to be extended to regional timber

investment or supply analysis. Recent research by

Carlen and Lofgren (1986) suggests that uncertainty

about the life of forest policy instruments may also

influence land management decisions by landowners.

This type of question is germane to studies of planting

subsidies and land conversion policies such as the

Conservation Reserve Program under the 1985 Farm

Bill in the United States.

Previous analysts have also assumed certainty and

constancy of interest rates. Temporal changes in

interest rates strongly influence the attractiveness of

long-term forestry investments. Increases in the market

rate of interest in recent years have affected both

the supply of and demand for forestry products.

Imperfect capital markets also can influence landowner

behavior if the consumption and production decisions

of forest owners are not separable (different interest

rates on borrowing and savings), including the effect

of farmer’s age on such decisions (Loikkanen and

others 1986).

Most studies assume that the market value of land

for use in timber production fully reflects the present

value of future harvests, but that assumption may be

wrong. The time required to produce a timber crop

exceeds the typical business planning horizon, and

there is evidence that the market value of immature

timberland may not reflect the present value of the

timber crop that will be produced. NIPF owners,

therefore, may not be able to capture full returns of

their timber investment without waiting until the timber

is merchantable.

Modeling Framework

Modeling of regional NIPF timber investments has

typically been isolated from other aspects of land

management. Interactions between timber harvesting

and other forest products and land uses have been

ignored or omitted from timber market models. This

approach ignores the simultaneous nature of investment, harvesting, and land use decisions and the

linkages between investment, inventory, and prices.

Modeling of continuous quantity within the same

specifications as discrete choices, such as selling

versus not selling timber (Loikkanen and others 1986)

may find greater application in researching such

linked land management decisions. In studies of

other sectors, especially agriculture, mathematical

programming has placed investment in a market

context (Hazel1 and Norton 1986). This approach

holds promise for using available forest inventory

and management treatment data in existing aggregate

timber demand models.

Previous models of timber investments have often

considered timber the sole product of forestry

enterprise and have focused on even-aged management regimes. Experience suggests that landowners

simultaneously produce and consume several forest

products and that uneven-aged silvicultural systems

can be important means of providing multiple outputs

from the forest (Haight and Monserud 1990). While

some economic analyses have been completed on

hunting recreation, the general topic of joint forest

production remains largely unexplored. A recent

South Carolina study found that joint production was

statistically related to adoption of silvicultural practices,

while cost or ease of silvicultural practices were not

statistically related (Haymond 1988). Further development of markets for nontimber forest outputs (such

as leasing land for hunting) is likely to increase the

importance of joint forest production.

11
NIPF timber management options are also influenced

by the dynamics of land use. For example, increased

urbanization can affect management options for

forest lands (Alig and Healy 1987). Forestation of

marginal croplands, particularly in the South, depends

upon agricultural as well as timber markets. Government policies in other sectors, especially those

directed at surplus agricultural production, and

externalities (such as design of Conservation Reserve

Program to reduce soil erosion), will have important

impacts on timber supply (USDA Forest Service

1988). Forest management activities such as harvesting may also predispose a tract of land to subsequent

land use conversion.

Another impact on NIPF management that has not

surfaced in investment modeling is government

regulation (Henly and others 1988b). Boyd and Hyde

(1989) did not find a statistically significant increase

in total inventory or total standing volume per acre in

Virginia attributable to the State’s Forestry Practices

Act. They reported that effects of newer, more

environmentally sensitive forest practice legislation in

Washington and Oregon raise doubts about legislation

that does not sharply focus on NIPF owners in

locations where forest regeneration is least likely.

Data Considerations

Much of the analysis described above requires data

on decisions by forest owners. A central problem of

previous research in this area has been the lack of

high-quality data. Few studies have been based on

samples from which reliable inferences could be

drawn for a particular geographic area. Furthermore,

the use of proxy variables has weakened hypothesis

tests considerably. Periodic and systematic surveys

of landowners are essential to develop the data

necessary to evaluate the effects of markets, policies,

and owner characteristics on landowner decisions.

The composition of the broad NIPF class has been

changing rapidly (Alig and others 1986) so concurrent

changes in private forest investment strategies may

occur (Yoho 1985).

Tax rolls and timber deeds on file in county court

houses have commonly been used to draw samples

from which microlevel data are obtained. These

sample frames have limits, however, and dependence

on them perpetuates the problem of having highly

fragmented and narrowly focused data. Because

forestry-related behavior of landowners in regions

such as the South is so critical to the Nation’s timber

supplies, broad area sampling applicable to whole

regions seems justified for NIPF. Once established,

the area sample could be used periodically to develop

time-series and cross-sectional data on landowner

characteristics, behavior, markets, public programs,

and forest resource conditions. This information

could then be used to estimate the parameters

affecting landowner timber management decisions.

Potential benefits of additional data acquisition are

difficult to evaluate, but the importance of NIPF land

for forest resource supplies and the value of data-rich

studies like that of Fecso and others (1982) suggest

that the investment in systematic area sampling

would be worthwhile, particularly in the South.

Simultaneous modeling of the levels of timber harvest,

intensity of timber management, and land area

devoted to timber growing has not been possible.

Methodological shortcomings and data deficiencies

have forced analysts to separate the overall problem

into smaller, more tractable components. In the

concluding section, we recommend research that is

needed to provide more comprehensive and integrated models.

Conclusions

Findings from previous research indicate that

stumpage price increases will not necessarily lead to

increasing timber supplies from NIPF lands. Future

supplies depend on a complex of market and policy

factors that influence planting rates, intermediate

treatments, and harvesting rates. Analysts must be

careful in attempting to isolate determinants of NIPF

behavior because the ownership class and the

motivations of its members are diverse. Data on

NIPF owners’ behavior and on changes in behavior

are weak. Traditional optimization approaches to

investment decisions often do not yield testable

formulations (Adams and Haynes 1986).

Conclusive research findings on timber management

and the effects of government programs on NIPF

timber management include:

1. Cost sharing correlates with an increased probability of tree planting by NIPF owners.

2. Landowner income is positively correlated with

increased tree planting and negatively correlated

with increased harvesting.

3. Cost-share plantings are concentrated on relatively productive acres.

4. Most cost-share plantings are not liquidated

when support payments end.

5. Technical assistance is highly correlated with

increased harvesting.

12
6. Technical assistance with harvesting has tended

to increase revenues for owners and has left residual

stands that are in better condition.

7. Large forested tracts tend to be harvested more

often than smaller ones.

While NIPF owners do respond to public incentives,

data are insufficient to demonstrate the full extent of

the response. Major questions remain about: (1)

effects of expected prices on planting and intermediate

treatments, (2) effects of cost sharing on harvesting,

(3) income effects, (4) effects of technical assistance

alone on all three forest management activities, and

(5) capital substitution in government programs. A

clearer understanding is needed of relationships

between landowner decisions about planting, stand

treatments, and harvesting.

The needs outlined above frame a research agenda.

When new studies are begun, considerable thought

should be given to both the unanswered questions

and the theoretical modeling and data considerations.

Many previous studies have been too narrowly

focused or have drawn too narrow a sample to address

regional or national questions. Several important

topics for-further research in the area of NIPF timber

management behavior are:

l The linkages between policy variables and timber

investments, framed in a decisionmaking context

encompassing harvest, forestation, and land use

choices.

l The implications of joint forest production in timber

investments.

l Economic and demographic factors involved in

forest type and land use changes.

l Repeated sampling of NIPF owners and land

management to measure changes in timber supply.

l Analysis of local and regional timber market

imperfections.

The reliability of projections of timber supply requires

estimates of NIPF owner responses to investment

opportunities under various market conditions, social

settings, and policy options. An improved model of

forest investment behavior must: (1) translate acres

with potential for silvicultural treatment into acres

likely to receive treatment, and (2) assess the

associated influences of markets and private and

public programs in allocating land and capital. This

improved model would also promote more realistic

projections of timber supplies and more knowledgeable formulation of programs.

Acknowledgments

The authors acknowledge useful review comments

by Tom Mills and Bill Cannon, USDA Forest Service,

RPA, Washington, DC; Steve Daniels, Fred Cubbage,

David Brooks, Bill Kurtz, and Jim Yoho. Partial funding

for preparing this report was provided by the RPA

group of the USDA Forest Service.

l The implications of risk perception in timber

investments.

13
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Alig, Ralph J.; Lee, Karen J.; Moulton, Robert J. 1990. Likelihood Alig, Ralph J.; Lee, Karen J.; Moulton, Robert J. 1990. Likelihood I

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of timber management on nonindustrial private forests: evidence

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of timber management on nonindustrial private forests: evidence

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Department of Agriculture, Forest Service, Southeastern Forest

,

I

Experiment Station. 17 pp. Experiment Station. 17 pp. I

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Research on timber management tendencies by nonindustrial private I Research on timber management tendencies by nonindustrial private

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forest owners is reviewed, and government programs are found to forest owners is reviewed, and government programs are found to

contribute both to planting and harvesting activities. I contribute both to planting and harvesting activities. I

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KEYWORDS: Forest investment behavior, cost sharing, technical KEYWORDS: Forest investment behavior, cost sharing, technical

assistance.

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I
The Forest Service, U.S. Department of

Agriculture, is dedicated to the principle of

multiple use management of the Nation’s forest resources

for sustained yields of wood, water, forage, wildlife, and

recreation. Through forestry research, cooperation with the

States and private forest owners, and management of the

National Forests and National Grasslands, it strives-as

directed by Congress-to provide increasingly greater

service to a growing Nation.

USDA policy prohibits discrimination because of race,

color, national origin, sex, age, religion, or handicapping

condition. Any person who believes he or she has been

discriminated against in any USDA-related activity should

immediately contact the Secretary of Agriculture,

Washington, DC 20250.