Chart: Total return on forest investment by component (2017–2023)
At 3.9%, the total return on private forests in 2023 fell well short of the average of previous years. The sharp fall was driven by slower growth in forest property prices.
The Suomen Sijoitusmetsät total return on forest investment combines operating profit and the net value increment of the growing stock, both taken from the investment return calculations of Natural Resources Institute Finland (Luke), with the change in the market price level of forest properties. In 2022, the total return was 12.3%, and the average for the previous seven years was 10.3%. Last year, the rise in the market price level added only 0.7 percentage points to the total return, whereas it had previously accounted for more than half of it. The more stable return components, operating profit and the net value increment of the growing stock, contributed 2.4 and 0.8 percentage points respectively.
“After years of brisk growth, the market price level levelled off in 2023, although it did not turn negative on an annual basis,” says Eero Viitanen, Head of Forest Information at Suomen Sijoitusmetsät. “Operating profit and net value increment are linked: when more timber is harvested in a year, operating profit rises and net value increment falls. Operating profit is also affected by changes in stumpage prices.”
Components of the total return on forest investment
Operating profit describes the monetary return from wood production, taking into account timber sales income, silvicultural and administrative costs, and wood production subsidies. The net value increment of the growing stock takes into account tree growth, harvesting and trees growing into larger dimensions. Forest property market prices are needed to relate the return to the capital invested, and the change in the market price level is measured with the Suomen Sijoitusmetsät Market Price Index.
“When looking at the size of the total return, it is worth remembering that the data covers the whole of Finland and both actively and passively managed forest properties,” says Mika Venho, founder of Suomen Sijoitusmetsät.
Luke statistics facing the axe
As part of cost savings at Natural Resources Institute Finland, the Forestry as an investment and Operating profit of non-industrial private forestry statistics, on which the total return calculation is based, are currently set to be discontinued. The 2023 figures may therefore be the last, at least in their current form.
Follow this link to read the press release on the STT Info website.
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