In 2019, the economic situation had passed its peak, and the profitability of forestry fell clearly from the previous peak year. Felling volumes of logs from non-industrial private forests decreased by 12%, and the prices of softwood logs fell by nearly 8% in real terms. Demand for pulpwood remained relatively high. Felling volumes decreased by roughly 5% but prices dropped only by 1% (prices converted using the cost-of-living index).
The operating profit of non-industrial private forestry decreased by 17% to EUR 128 per hectare in 2019. Although this is a significant decrease from the peak year, the operating profit was still 4% higher than the previous five-year average. The operating profit of non-industrial private forestry totalled EUR 1,755 million, being at the same level as in 2017.
Lower demand for logs reflected in earnings in Southern Finland
In Southern Finland, the operating profit of non-industrial private forestry decreased by nearly 20% from the previous year to EUR 163 per hectare. In Northern Finland, the operating profit was EUR 58 per hectare (-5%). Northern Finland consists of the regions of North Ostrobothnia, Kainuu and Lapland.
Measured by regions, the highest operating profit per hectare was reached in Päijät-Häme (EUR 232 per hectare) and Kanta-Häme (EUR 228 per hectare), although their operating profit fell by more than 20%. In Lapland, the operating profit was EUR 36 per hectare, showing a decrease of only 2% from the previous year. The operating profit decreased the most in Etelä-Savo (-31%), Kymenlaakso (-24%), Kanta-Häme (-23%) and North Karelia (-23%). The operating profit per hectare decreased in Mainland Finland, while it doubled in the Åland as a result of higher felling volumes due to storm damage.
“Two years ago, logs accounted for nearly three quarters of earnings in Southern Finland and more than half in the north. Last year, the felling volumes and prices of logs fell much more steeply than those of pulpwood. This can be seen as a larger decrease in the operating profit in Southern Finland than in Northern Finland”, says Esa Uotila, research scientist at the Natural Resources Institute Finland (Luke).
Return of assets in wood production was negative
Return of assets in wood production decreased to -0.9% in 2019. The previous year when ROA was negative was in 2012. In Luke’s calculations, return of assets have been divided into five parts. Earnings from wood sales increased the return by 3.7, the value of net increment of growing stock by 1.4 and state subsidies by 0.1 percentage points. The decrease in stumpage prices reduced the return of assets by 5.5 and total wood production costs by 0.6 percentage points. The return of assets was much lower than average ROA in previous years. Average ROA was 6.1% during the previous five years and 3.5% during the previous ten years.
“The calculation method for the return of assets in wood production was originally developed for the comparison of different types of investment. 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 2019, the value of non-industrial private forests calculated in this manner was EUR 51 billion, being roughly EUR 2 billion less than in the previous year”, Uotila explains.
Over the course of years, the fluctuation of wood prices has increased or lowered total returns on wood production by up to a little over one quarter. Excluding changes in wood prices, the returns have remained close 4%.
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).
In the spring of 2020, errors resulting from different ownership categories in forest statistics and VMI information were corrected from time series of the statistics.