Economic factors influencing industrial landowner assistance programs on private forest land in the south

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Virginia Tech


The survey of medium-to-large forest industry firms across the South found 11,215 landowners enrolled in formal industrial landowner assistance programs in 1989. LAPs appeal to landowners with relatively large holdings who normally have financial returns as a part of their objectives. The forest industry has encouraged this group of owners to participate because of the efficiency in managing large tracts. The average LAP tract size of 428 acres is much larger than the average southern NIPF holding of 47 acres by a factor of ten (Birch et al. 1982). The forest industry enrolled 4,798,274 acres in their LAPs in 1989. Most firms indicated that they planned to increase the size of their LAPs by a total of 1,094,000 acres (23%) over the next five years.

The popularity of LAPs in the forest industry appears to be based primarily upon their reliability and cost in comparison to other timber supply strategies (i.e., fee land, leased land, and the open market). Over half (53%) of the firms reported that they had successfully purchased at least 90 percent of the desired timber put up for sale in their LAPs.

In case studies of three company programs, a capital budgeting analysis showed that the LAP was the least costly alternative for one firm and that the open market was the least costly timber supply strategy, followed closely by LAPs, for two firms. The LAP was the least costly strategy for Company C primarily because the probability of procuring timber in the LAP (0.95) was much greater than the probability of procurement on the open market (0.30). Since more than half of the surveyed firms were successful in purchasing a substantial part (90%) of the desired timber offered for sale in their LAPs, these results suggest that firms which operate in areas of heavy competition for timber, with correspondingly low probabilities of procurement success on the open market, may find LAPs to be their least expensive timber supply strategy.