The operating profit of non-industrial private forestry decreased by 10% to the level of 2013–2015. Due to reduced felling volumes, the share of net increment in the investment returns on wood production was clearly higher than before.
In 2020, labour disputes in the forest industry early in the year and the uncertainty caused by the coronavirus epidemic later on were reflected in the profitability of non-industrial private forestry. The operating profit fell by 10% in real terms to EUR 114 per hectare (EUR 1,567 million), when adjusting the monetary value with the consumer price index. The decline was similar when compared to the average of the previous five years. The decline of the operating profit continued for the second year in a row, as felling volumes decreased by 10% and real standing sales prices fell, except for spruce pulpwood.
The operating profit decreased in nearly all regions
In Southern Finland, the operating profit of non-industrial private forestry was EUR 145 per hectare (–11% compared with the previous year) and in Northern Finland, EUR 53 per hectare (–6%). Northern Finland consists of the regions of North Ostrobothnia, Kainuu and Lapland.
Studied by region, the highest hectare-specific operating profit was again achieved in Kanta-Häme (EUR 215 per hectare) and Päijät-Häme (EUR 214 per hectare). In Lapland, the operating profit was EUR 35 per hectare, showing an increase of 1% from the previous year. In real terms, operating profit declined most in South Karelia (–19%) and Kymenlaakso (–17%). The operating profit declined in all regions except in Lapland.
“Even though there was a clear decline, much worse was feared at the beginning of the coronavirus pandemic. There was no crash like that of the depression of the early 1990s or the financial crisis, and recovery from the slump has been exceptionally fast”, says Esa Uotila, research scientist at the Natural Resources Institute Finland (Luke).
Felling at a low level, returns from growth
The investment returns on wood production were 2.6% in 2020. The returns increased by three percentage points from the previous year. However, the average returns of the previous five years were higher; there was a drop of three percentage points from that level.
In Luke’s investment returns calculations, the returns have been divided into five components. Earnings from wood sales increased the returns by 3.4 percentage points, the value of the net increment by 1.7 and state subsidies by 0.1 percentage points. The decrease in standing sales prices reduced the investment returns by 1.9 and total wood production costs by 0.4 percentage points. Since the felling volumes were clearly lower than in the previous years, the share of net increment in the returns was larger than usual.
“The calculation method for investment returns on wood production was originally developed for the comparison of the returns of different investment methods. In the calculation, one cubic metre of spruce logs is a ‘share’, the value of which is determined in regional wood markets. The value of assets is calculated by multiplying the number of shares by the share price. In 2020, the value of non-industrial private forests calculated in this manner was EUR 50.5 billion, nearly the same as in the previous year”, Uotila explains.
Over the course of years, the fluctuation of wood prices has increased or lowered the investment returns on wood production by up to a little over one quarter. Without the wood price changes, the returns would have remained at around 4.5% in the past few years.
Information on the statistics
The statistics on operating profit in non-industrial private forestry comprise gross stumpage earnings (calculated on the basis of the volume of felled industrial and energy wood, as well as wood felled for private use, and standing sales prices) and state subsidies for wood production. Expenditure includes investments in private silviculture and forest improvement, administrative costs and other expenses. Earnings and wood production investments are based on regional statistical information, as well as on administrative costs and other expenses, most of which have been estimated.
The return on assets in wood production published in the statistics on forest as an investment is a return index calculated on the basis of fellings, standing sales prices, state forestry subsidies, wood production expenditure and growing stock data. In this calculation, earnings and expenditure are proportional to the value of the growing stock calculated based on the growing stock and standing sales prices. The information is based on Luke’s statistics and the National Forest Inventories (VMI).