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June 15, 2011
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Changes in forest ownership structure pose challenges for Finland |
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As in most Western European countries, forests in Finland are mainly owned by private people and families. About 52%, or 12 million hectares, of Finland’s total forest area is under non-industrial private(x) ownership . The state owns 35% and forest-industry companies eight per cent, while five per cent is owned by others, such as the Church, communities, and counties.
x= Incl. individuals, heirs, and private partnerships. Total forest area consist of productive forest land, scrub land and waste land. The share of productive forest land is 76,5% of the total forest area.
During the next two decades, family forest ownership in Finland will face changes that will challenge the forest sector. On the one hand, owners are ageing, and, at the same time, more and more of them are living in cities and towns.
In Finland, about 85% have received their forest estate by inheritance or through some other transaction within their family. Only 15% of the owners have bought their forest land on the open market. As redemption for the whole forest estate or inheritance taxes require substantial funding in many cases, the result is often partition of holdings into smaller and smaller units. This leads to unprofitable forest management and harvesting.
There is lively debate about the consequences of parcelised private forest ownership for the whole forest sector. The Finnish forest industry will be affected particularly strongly, as every year over 80% of domestic roundwood is purchased from family forests.
‘Because of the dominance of small forest holdings, forest revenue for the majority of forest-owners will be only an occasional extra income item on top of their regular salary or pension. As they don’t need regular income from forestry, they can usually wait till prices rise to their preferred level. Moreover, unfavourable holding structure increases the costs of roundwood harvesting and silviculture' says Harri Hänninen, senior researcher at Metla and an expert on private forest ownership in Finland. However, changes in forest ownership due to inheritance will occur, even if only slowly: ‘Because people live longer, the age of forest-owners will continue to increase.’ And as people live longer, they keep their holdings longer than before.
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In Finland, the average age of private forest-owners is 60 years and about 45% of them are already pensioners. ‘According to studies, the age of a forest-owner influences his or her ability to carry out forest management work and operations. It has a significant effect on roundwood removals and the profitability of forestry. Old owners sell less wood and do it less often than young owners,’ says Hänninen.
In addition, private forest-owners with a traditional agricultural or professional background in forestry are more and more often replaced by owners with a different, non-professional and urban, background.
‘These new urban owners will need practical advice on how to perform forest management work, on how to improve the economic viability of forest management, and on the correct sequence of operations. This may create job opportunities for forest advisory services and small-scale entrepreneurs in sparsely populated areas,’ says Hänninen, who continues: ‘But urban forest-owners often prefer ecological over economic goals for their forests.’ This will pose several types of challenges for forestry and forestry extension work, too.
Changes in forest ownership take place less often among non-agricultural forest-owners than among agricultural forest-owners. What are the driving forces behind this phenomenon?
‘According to Finnish legislation, agricultural forest-owners are considered entrepreneurs. When there is a change of generation, they receive major inheritance tax or gift tax relief. However, non‑agricultural forest-owners are seen – instead of entrepreneurs – as financial investors and their tax is based on the fair market value of the forest holding. The difference in taxation can be tenfold,’ says Jussi Leppänen, forest economist at Metla. Therefore, political decisions and tax incentives are needed in order for a change of generation to be profitable also for a non-agricultural forest-owner.
Can the development of wood supply from private forests be influenced in the future? ‘Yes, and relatively easily,’ says Leppänen. He explains: ‘The supply of wood is influenced by forest resources, the forest ownership structure, forest legislation, taxation, the structure of forest holdings, logging structures, and various market factors – such as wood prices and interest rates. Some of these factors can be influenced by political decisions, while others do depend on market activity.’
The role of Metla as a research institute is to produce scientific information on the future challenges for family forests, in order to ensure reliable wood supply also in the future. ‘Metla’s researchers have been working on a ministerial working group, which recently published a report on the measures needed to develop the structure of forest holdings in Finland. The report recommends several political actions, but on the top there is a tax relief to encourage changes of generation in private forest holdings and to improve forest holdings’ size and structure,’ says Leppänen.
Further information:
- Researcher Harri Hänninen, tel. +358 29 532 5428, e-mail: harri.hanninen @ metla.fi
- Researcher Jussi Leppänen, tel. +358 29 532 5444, e-mail: jussi.leppanen @ metla.fi
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Feedback | Editor: Markus Lier, firstname.surname@metla.fi