Authors: James T. Walters, former Extension Associate, Department of Forestry, College of Natural Resources, Virginia Tech and James E. Johnson, Associate Dean of Outreach, College of Natural Resources, Virginia Tech.
Publication Number: 420-144, posted March 2000
One of the most common questions from many forest landowners is how they will pay for sustainable forest management. Increasing regulations and social pressures have dramatically increased the costs of ownership. Therefore, it is very important to recognize cost-efficient opportunities to practice sustainable forest management and to take advantage of financial incentives for implementing sustainable activities. In particular, you can be aware of financial opportunities, diversify the income that you receive from your forest, and become involved in sustainable forest management on a larger scale.
Strategy #1: Be Aware of Financial Opportunities
Traditionally, the most common ways to make money from the forest were to sell timber, lease hunting rights, and lease or sell mineral rights. Many landowners have earned income through these activities. However, the demand for non-timber forest products such as wildlife and recreation is increasing, and new income opportunities are becoming available. Although you may choose not to take advantage of these opportunities, it is still a good idea to be aware of your options in owning forest land. As taxes and the costs of forest management activities increase, it will become increasingly important to recognize every income opportunity that is available. You can learn more about income opportunities by researching different income alternatives, periodically checking on the value of different opportunities, and recognizing non-monetary benefits you receive from the forest.
There are many different opportunities to get income from the forest, but your particular opportunities depend on the resources you have in your forest. Each income opportunity will require the use of a forest resource such as timber, water, wildlife, non-timber plants, or recreation areas. Therefore, it is important that a complete inventory of your forest resources is included in your forest management plan.
Before you commit to any particular income opportunity, it is a good idea to ensure that you own the rights to the resource in question. For example, if you plan to cut timber, are you sure that you own the timber rights to the property? Likewise, if you plan to lease your forest for hunting access, you must own the hunting rights to the property. If you purchased your property, then the lawyer probably specified whether you owned all property rights. If the property was inherited, it may be wise to have a title search conducted to determine which rights you own. A quick and inexpensive title search may save you the expense of a legal battle and help you avoid fines and penalties.
It is also a good idea to check on the tax implications of any income you plan to receive from your forest. Forests are considered a capital asset and are subject to capital gains taxes. Many landowners do not investigate their tax options until they have received income from their forest, and their tax options then become very limited. A complete discussion of tax issues would be very complex and is beyond the scope of this publication. The best way to investigate your tax options is to formulate a forest management plan that lists the income you plan to receive from the forest. Your accountant or tax advisor can review this plan and make recommendations about adjusting the plan to minimize taxes. Virginia Cooperative Extension is an excellent source of specific information and advice regarding taxes on forestland.
Researching income opportunities will involve talking with foresters, wildlife biologists, and others who work with natural resources. Most forest-related income results from selling resources, leasing resources or access to public resources, or financial incentive programs. You may have opportunities to realize all of these types of income. Therefore, it is a good idea to know about markets for each in your particular area. This information could be developed into a marketing plan and could be included with your forest management plan. Your county Extension agent can help you create a marketing plan for your forest.
Selling timber is the most common and largest source of income for many forest owners. When you sell timber, it is usually harvested for wood products such as veneer, lumber, pulpwood, or wood chips. Timber is usually sold either to a forest products company or directly to a logger. You will probably only sell timber from your forest once in your lifetime, so it is important to understand the selling process and the pitfalls you should avoid. It is a very good idea to contact a consulting forester or your county forester to obtain assistance in your timber sale. A forester can help you ensure that your objectives are fulfilled by the harvesting operation.
There are two common types of timber sales: lump-sum sales and unit sales. In lump-sum sales, all the timber is sold to the buyer for a single, fixed price. Lump-sum sales are usually better for the landowner because they are easier to administer and they reduce the risk of losing timber to fire or theft. If you decide to have a lump-sum sale, it is important to make sure that you have a good estimate of the timber's value, that you time the sale to get a good price, and that you choose a logger who will not damage your forest.
Unit sales are sold to the buyer for an agreed upon price per unit. The buyer then reports how much of each product is harvested and pays the seller accordingly. Unit sales are less desirable than lump-sum sales because there is an increased risk of timber theft and damage to your forest. Furthermore, the landowner assumes the risk of defective timber in a unit sale; the buyer assumes risk in lump-sum sales.
Unit sales are also more difficult to administer. However, a unit sale may be a good alternative if you have a small tract of low-quality timber. If you do choose a unit sale, you should know prior to the sale which trees are being cut and how much volume will be harvested.
Regardless of whether you choose a lump-sum sale or a unit sale, you will need to determine a price for the timber. The most common techniques for determining price are collecting sealed bids and negotiating with individual buyers. Sealed bid sales are conducted by taking bids from several buyers and opening them at a specific time and place. The bids are announced and the highest bidder is offered the timber. In contrast, a negotiated sale involves talking with individual buyers and deciding on a fair price for the timber. Sealed bid, lump-sum timber sales are generally the best option for landowners who have good timber and a competitive timber market.
When you have decided on a buyer and price for your timber, you should develop a written contract that is signed by you and the buyer. A written contract will protect both you and the buyer. It will also clarify the responsibilities of each party involved in the transaction. Good timber sale contracts will address the price, the terms of payment, the amount or legal description of the timber being sold, the duration of the agreement, provisions to protect your forest, and provisions to release you from liability against workers' compensation claims.
After you have sold the timber and signed the contract, the buyer can begin to harvest the timber from your forest. It is a good idea to inspect the harvest frequently to ensure that the provisions in the contract are being followed. Common problems to watch for include inaccurate reporting of harvest volumes in a unit sale, damage to residual trees, cutting undesignated trees, crossing property boundaries, and damage to soil and water resources. A consulting forester will help you identify these problems.
Although timber sales are the most common income from wood products, there are other products in your forest that you may be able to sell. One of the most common alternative products is firewood. The supply of firewood is high in most of western Virginia, but you might be able to sell firewood from your forest. You might also be able to sell wood poles or fence posts if you have cedar and locust in your forest. These products are usually sold locally and can provide supplemental income to timber sales.
There is increasing interest in the value of non-wood products such as vines, nuts, herbs, and mulch. Traditionally, there have not been markets for these products, but specialty products are becoming more common and demand is gradually growing. Your county forester can give you more information about these markets, which are generally very localized.
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On A Side Note ...
The Forest Bank: A New Management Alternative The Forest Bank is a program of The Nature Conservancy, and is being developed to improve timber management across southwest Virginia. It is a collaboration of landowners who have exhibited their concern for stewardship and sustainability by depositing their timber rights into the bank. The Forest Bank is a private organization that purchases these timber rights and manages forests in a sustainable manner. The forests in the Forest Bank are managed using many of the management practices described in this handbook. In exchange for timber rights, landowners who participate in the Forest Bank receive an annual payment that is very similar to an annuity. The annuity is based on the initial value of the timber and continues as long as the deposit is in the Forest Bank. In addition to the guaranteed annual payment, landowners benefit by getting an honest appraisal of the value of the timber, access to emergency cash, professional and ecologically sustainable management, and insurance against catastrophic loss of timber. The Forest Bank accumulates income and guarantees payments to landowners from proceeds of timber sales on forests in the bank. For example, at the appropriate time the bank's forester may designate a timber sale in your forest. The income from that timber sale will in part be used to make payments to all of the Forest Bank's depositors. The bank will be responsible for selling the timber, supervising logging, and establishing a healthy forest. The bank also develops a management plan for your forest that considers your personal ownership objectives. Management activities, such as timber stand improvement and prescribed burning, are also the responsibility of the Forest Bank. Although the Forest Bank manages the timber on bank properties, the landowner still maintains all other ownership rights that do not affect timber. For example, if you deposited your timber in the bank, you would still be able to hunt, fish, hike, and live in your forest. However, you wouldn't be able to develop the forest into a residential area, which would profoundly affect the timber. The Forest Bank office is located in Abingdon at 151 West Main Street. You can contact the Forest Bank at (540) 676-2209. |
There have always been opportunities to sell rights to a particular resource on your property. The
most notable of these are the mineral rights that have been sold in the coalfields. Many of these
opportunities still exist, but there is an increasing interest in other types of rights. For example,
environmental organizations or agencies may offer to purchase the development rights for properties
located near urban areas. The purchaser then holds these rights to prevent the property from being
developed in the future. This portion of your rights is called a conservation easement. The sale of
conservation easements is most common for landowners who own a large parcel of forest or for owners
of unique and fragile resources. The demand for these easements also depends significantly on the
location of your property. Most easement sales are found near developed areas.
Some landowners may even sell the timber rights of their forest to a forest products company or a conservation organization. The company or organization will then manage the timber according to their particular objectives. Your consulting forester or county forester can give you more information about companies and organizations that might purchase your timber rights.
If you decide to sell a particular resource from your forest, it is a good idea to consult with a forester and a lawyer. It is usually relatively easy to sell these resources, but their value is often unknown. Furthermore, you could be exposing yourself to liability or exposing your forest to damage. A forester and lawyer can help you to protect your interests in resource transactions.
Leasing the forest for recreational and other uses has been popular in other parts of the state for many years, but in western Virginia this practice is relatively new. We have a large amount of public forest, and many citizens either own or have free access to private forests. There has not been a demand for property leases, but leasing will become more popular as the region becomes more populated. The national forests are likely to become crowded and access to private land will become more restricted.
The most common types of leases are those for hunting, fishing, camping, and other recreational uses. The income from leases varies greatly and depends on the quality of the resources in your forest. For example, if you have good road access and quality deer habitat, then you could get a good rate for a hunting lease. In contrast, if your forest is remote and has poor habitat, then your lease would be worth less to potential clients. You can talk with your forester or a game biologist to set the rate for a lease in your forest.
There are several types of leases that you can offer in your forest. Annual leases allow the lessee to use the property for the entire year. Seasonal uses give the lessee access to the forest for a particular season. Short-term leases are usually daily, weekend, or weekly agreements. The type of agreement you decide to use will depend on the demand for leases and the type of resource you are leasing. Short-term leases are usually more profitable in high-demand areas and are appropriate for activities such as camping or fishing at a trout farm. Short-term leases are becoming very popular for natural resource and agriculture tourism, which involves leasing recreational opportunities in your forest to vacationers who are searching for a natural or in-the-country experience. Annual leases are well suited for long-term agreements with parties like hunt clubs, who might use the property for hunting, camping, fishing, and other activities throughout the year.
When you have decided on the type of lease you will offer, you will probably need to advertise the leasing opportunity to potential clients. Word of mouth is a very cost-effective and successful method of advertisement in many cases. You could also place an advertisement in a newspaper or outdoor magazine, display posters at local supermarkets and sporting goods stores, or have special events on your property to attract potential clients. It is also a good idea to contact your county forester, game warden, or county recreational department. These professionals may know of individuals or groups who would be interested in your lease.
It is very important to have a written legal agreement with the leaseholders in your forest. These agreements will reduce your liability, avoid misunderstandings, and protect your forest. A good lease will list the payment amount, terms of payment, expiration date, and mutual agreements of the lease. You and all the leaseholders should sign it. If you are leasing your forest on a short-term agreement, then a permit may be more appropriate than a lease agreement. However, the permit application should release you from liability and include provisions to protect your forest.
The increasing costs of good forest management have caused some landowners to convert their forests to other land uses, such as agricultural fields or residential developments. Governments, private organizations, and some consumers recognize the value of sustainably managed forests and have implemented financial incentive programs to help landowners offset the rising costs of forest management. Specific government incentive programs that you might consider investigating are cost-share programs, land-use tax assessments, and conservation easements. You might also consider pursuing market-based incentives to practice sustainable forestry.
Cost-share programs are financial incentive programs that help landowners pay for forest management activities such as management planning, timber stand improvement, soil and water protection, wildlife habitat improvement, and recreation enhancement. There are approximately ten different programs that reimburse from 20-75% of management costs. These programs are designed to help landowners practice good forest management.
There are different qualification criteria and cost-share rates for each incentive program, so it is a good idea to determine which programs are applicable for your forest. The best way to get information about the different programs is to contact your county forester. The VDOF administers several important cost-share programs, and the county forester can recommend agencies to contact regarding other programs. Your county forester will also know about fund limitations and the best time of the year to apply for assistance. Finally, the county forester will need to be involved in planning and implementing the management activities that fall under the cost-share programs.
Some local governments implement land-use tax assessments to encourage landowners to maintain forests and agricultural lands. These assessments are designed to lower taxes on forests and farms so that landowners do not have to sell land to pay high taxes. The county assessor and Commissioner of the Revenue determine a general assessment for forests and farms. All land in the county that meets the qualification criteria for land-use assessment is assessed at this general rate, which is usually much lower than the traditional fair-market value assessment. For example, if your forest is assessed at $350 per acre under fair-market value assessment, the land-use assessment might only be $175 per acre. In this example, you would save approximately 50% on your property taxes each year.
There are several requirements you must fulfill in order to qualify for a land-use assessment. Counties require that you have a minimum acreage, usually around 20 acres. You must also have a current forest management plan for the property. The county will require an application form and fee when you apply for the assessment. When you have been included in the program, you will be taxed at the land-use assessment until you change the forest to another land use. If you change the land use, you will be required to pay the difference between land-use taxes and regular taxes for the past five years. If you are interested in obtaining a land-use assessment for your forest, you should contact the tax assessor or the Commissioner of the Revenue for your county.
Conservation easements have been discussed as a source of income from your forest. However, you could choose to donate a conservation easement to a government agency or private organization. You would still retain all rights of ownership except the right to develop the property, and you could get significant tax benefits by donating the easement. Property taxes would be lower, estate taxes would be minimized, and you could take an income tax deduction. You can get more information about conservation easements from the Virginia Outdoors Foundation in Richmond. Although you should carefully consider the loss of development rights, donating an easement may be a significant financial incentive.
Market-based incentives are provided by consumers who are willing to pay more for forest products that come from sustainably managed forests. For example, some consumers will pay more for paper or lumber that comes from a well-managed forest. As the environmental movement progresses, there is increasing interest in these types of products.
Most consumers who will pay a premium for wood products from a well-managed forest will seek products with some type of forest management guarantee. The most common type of guarantee of good forest management is forest certification. Private organizations will inspect forests and provide certification of good management. One of the most-recognized forest certification programs is that of the Forest Stewardship Council (FSC). The American Forest and Paper Association and the National Woodland Owners Association have also developed forest certification programs. You could even become a Certified Tree Farmer with the American Tree Farm System. By having your forest certified, you may be able to receive a higher price for your timber. If you are interested in certifying your forest, you might ask your forester about certification programs.
It is a good idea to periodically check on the value of different income opportunities so that you know where to best invest the resources in your forest. If you know the value of the timber in your forest, the going rate for recreational leases, the value of conservation easements, the available cost-share programs, and the value of other opportunities, then you can choose the opportunities that meet your objectives and provide the most reasonable income.
The value of some resources will change frequently. For example, the value of your timber will change regularly with changes in lumber prices, weather, and wood inventory at local mills. Other income opportunities will have a relatively stable value. The land-use assessment of your timber is not likely to change for several years at a time. Therefore, you can investigate the different options on different schedules. You may have a consulting forester send you monthly reports on stumpage prices in your area, but wait for the local newspaper to report information about new tax assessments.
There are many sources of information about the value of income opportunities in your forest. Your consulting forester and the local county forester are good places to start. They should be abreast of the markets for forest products and other income opportunities. You can also talk with other landowners about the income they receive from their forests. Virginia Cooperative Extension and other agencies offer periodic workshops and conferences in which you may find information about marketing the products in your forest. You may even decide to join a landowner association, which may have a newsletter or journal with information about forest income. If you are interested in specific or detailed information, then you can contact a wildlife biologist, the county recreation department, the tax assessor, or your accountant. These professionals and agencies have detailed information about specific programs and opportunities.
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On A Side Note ...
Cost-Share Programs: A Reward for Stewardship Cost-share programs are designed to reward landowners for wise forest management. These government programs provide financial assistance in performing specific management practices. Programs are constantly changing according to available funds, program demand, and specific environmental needs. The programs fall into five general categories: environmental protection, wildlife management, woodland management, protection of water quality, and restoration of wetlands. The following table lists the programs in each of these categories and includes the name of the agency responsible for administering the program. For more information about a specific cost-share program, you can contact the local office of the listed agency.
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Non-monetary benefits are those that you get from owning your forest, but are not in the form of money. If you hunt in your forest, then your hunting experience is a non-monetary benefit. You could sell this opportunity to another person, but you choose to enjoy it yourself. Similar benefits include personal recreation use, aesthetic enjoyment, clean water, and cutting firewood.
It is difficult to place a value on non-monetary benefits because they have different values to different people. However, it is important to recognize the benefits you receive and to consider their value as an income. After all, if you sold your forest, you would have to pay for these benefits. You might also consider what other people are willing to pay for the benefits you are receiving. For example, if the going rate for hunting leases is $4/acre, then you may decide to lease your forest to a hunting club and find another place to do your personal hunting.
Strategy #2: Diversify the Income You Receive from Your Forest
The value of the resources in your forest is constantly changing, and some values are more volatile than others. Timber prices might change relatively frequently, but hunting leases increase steadily between lease periods. By taking advantage of several income opportunities, you can diversify the income you receive from your forest. When resources are diversified, you are less dependent on the market for a particular forest product. For example, if the only source of income in your forest is timber sales, then the amount of income you get from your forest is very dependent on the markets for lumber, paper, and other forest products. However, if you also had a hunting lease, a land-use tax assessment, and you sold firewood, then you would be much less dependent on timber for income.
Diversifying the income from your forest can be a relatively simple task. Review the income alternatives that are available and select those that correspond with your ownership objectives, do not interfere with each other, and will more fully utilize the resources in your forest.
When you are selecting income opportunities, it is a good idea to maintain flexibility in your management activities. If one particular opportunity will restrict your ability to use other resources for an extended period, you may want to carefully consider the long-term impact of choosing that opportunity. Consider, for example, that you have the opportunity to sell the mineral rights to your forest. It is a good idea to consider how the loss of those rights will affect the other resources in your forest. Perhaps the buyer of the mineral rights plans to strip the forest to mine coal. If this occurs, you will lose the value of timber, wildlife, recreational opportunities, and other resources. It may be a better decision to decline the opportunity to sell mineral rights and to conserve the remainder of your resources.
Strategy #3: Become Involved in Sustainable Forest Management on a Larger Scale
You may recall that the mission of sustainable forestry is to meet the needs of today without compromising resources to fulfill the needs of future generations. The management activities that you implement in your forest certainly influence the sustainability of western Virginia's forests. However, there are some components of sustainability that you cannot control inside the boundaries of your forest. For example, in order to be sustainable we need a regular supply of timber from our forests, but your timber is only a small portion of the regional timber supply. How will harvesting the timber on your forest affect regional timber supply? The answer will depend on the harvest schedules of other landowners. Managing the forests across a region is called landscape management.
Another example of landscape management is the management of many migratory neo-tropical birds, which need large, contiguous blocks of mature forests for habitat. It is unlikely that your forest is large enough to manage for these birds. Even if your forest were large enough, it is unlikely that it would be financially feasible to manage for neo-tropical birds. The examples of regional timber supply and migratory neo-tropical birds require management of forests across property boundaries.
In order to manage regional forests, we need to coordinate forest management activities with other landowners. This coordination is a difficult task. Landowners who participate in landscape management could lose some income or property rights from their forest. There are, however, some opportunities for landscape-level management that are acceptable to many landowners. Several organizations are attempting to coordinate forest management efforts regionally. You can participate in landscape-level forest management by considering the programs that coordinate regional forest management and by simply talking with neighbors about forest management objectives and activities.
Several organizations and government agencies have developed programs to coordinate the management of private forests in western Virginia. These organizations usually focus their efforts on attacking a specific problem in landscape-level management. Some programs may even provide financial incentives for joining the effort. It is a good idea to research the opportunities for becoming involved in these programs and to consider the benefits you might receive by participating in them.
One of the most common goals of landscape-level forest managers is to reduce forest fragmentation. Fragmentation often occurs when a large block of forest is divided into smaller properties and a portion of the property is converted to another form of land use. Land development and estate divisions are the most common forms of forest fragmentation. Organizations and agencies have become successful in preventing fragmentation by accepting conservation easements, which usually consist of the development rights to property. Easement donors receive favorable tax treatment and other incentives in exchange for their donation. If you and your heirs have no plans for developing your forest, then you might consider donating a conservation easement.
Water quality is another important concern in landscape-level forest management, because non-point source pollution is a large problem in Virginia's waters. Therefore, the Soil and Water Districts of the Virginia Department of Conservation and Recreation will help you to identify problems on your property in an effort to improve the water quality of the entire region. They can even help you to obtain financial assistance through federal and state cost-share programs. The office of your Soil and Water District is located in the local USDA Service Center.
Landowner cooperatives are created by groups of local landowners so that they can share information and manage their forests based upon regional needs and objectives. For example, the cooperative might focus on managing timber for income while improving wildlife habitat and water quality throughout the land base. Landowners in a cooperative may lose some freedom to make decisions, but gain the opportunity to participate in landscape-level management. Forest owners in the northeastern United States have found this tradeoff to be well worthwhile; landowner cooperatives are popular in that region. Fragmented forests and environmental concerns in the Northeast are factors that contribute to the popularity of cooperatives. Although they are uncommon in western Virginia, landowner cooperatives should gain popularity as our forests become more fragmented and concern over forest management increases.
Landscape-level management is a relatively new concern for private landowners, but it is a very important component of sustainable forest management. The roots are established for programs that coordinate the forest management efforts of local landowners, but the programs are not very popular. As we face more management challenges and landscape-level issues become more important, we will see an increase in the popularity of many of these opportunities.
There are many benefits in talking with your neighbors about forest management objectives and activities. You will probably improve your relationship if both parties can communicate in an open and honest manner. You will also know what activities to expect in adjacent forests. Good communication will also help you and your neighbors to informally plan forest management across the local area.
When you meet with the owners of adjacent forests, one of the most important subjects you might discuss is ownership objectives. It is a good idea to share long-range plans for the forest and point out the most important objectives. You might even ask specific questions about neighbors' objectives. For example, you might ask which timber products they are producing or which species of wildlife they want to encourage.
Management activities are another important subject in a conversation with neighbors. In particular, you might be interested in their plans for timber harvests, prescribed burns, and other specific activities. Knowledge of neighbors' plans will prevent you from being surprised when log trucks are leaving the neighboring forest or a large column of smoke is coming from the adjacent property. You may even decide to combine efforts in certain management activities. For example, it might be cheaper to perform a prescribed burn on both properties at the same time. Conversations with neighbors can help you save money and headaches.
When you and your neighbors have finished discussing individual objectives and plans, you might begin to think about how you could coordinate your management activities to improve forest management across the area. For example, if you are both planning timber sales, then you may decide to postpone one of the sales so that the view from the highway is more attractive. You may decide to preserve an important wildlife travel corridor that crosses your properties. You can be particularly successful in managing local forests if all of your neighbors have similar ownership objectives. However, if neighbor coordination is not possible, then the management activities on your neighbor's property may at least influence the management practices that you adopt in your forest.
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