Effect of Product Price, Interest Rates and Forestry Incentives on Financial Returns from Arkansas\u27 Nonindustrial Private Forests

As the U.S. population increases, demand for Arkansas\u27 forest production will continue to increase. Nonindustrial private forests (NIPF) will be increasingly relied upon to meet future demand. Restocking following harvest and good forest management techniques have not always been practiced on NIPF lands. Federal cost sharing programs exist which encourage investment in forestry; federal programs may pay up to half of establishment and management costs. Special federal capital gains treatment and other tax incentives also exist for nonindustrial landowners; however, nonindustrial use of incentives is not great. Models were developed to determine whether actual stumpage prices and existing economic incentives were sufficient to cover the investment cost of establishment and owning and holding the stand. Using site indexes of 70 and 80 (base 50) for loblolly pine plantations, stand value and opportunity costs were compared annually over the life of a 40 year rotation. Long-term U.S. Treasury Bond rates and a flat 6% rate of return were used to estimate opportunity costs on an after tax basis. Investment costs were estimated with and without using existing economic incentives. Results show that if front-end costs of establishment are low, stand value is virtually certain to be greater than opportunity costs. This was true even on low site index tracts with high opportunity costs. Without incentives, investment success is subject to stumpage price fluctuations especially when high opportunity costs are in place. Policy recommendations include increasing present efforts to inform NIPF landowners of incentive opportunities to encourage development of private forest resources. If private landowners have the proper information, they are more likely to improve their personal situation and enhance forest productivity