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One can't own trees in Canada by buying shares [ClearOnMoney]
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One can't own trees in Canada by buying shares

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Commentary

One can't own trees in Canada by buying shares

5 Sep 2012 by Jim Fickett.

The vast majority of forest in Canada is publicly owned. All publicly traded forest product companies in Canada source essentially all their wood from public land via long-term leases. So it is not possible to take a direct ownership interest in forests by buying shares of a Canadian company.

The last time I wrote about investing in trees (The difficulty of investing in timber) I gave my reasons for not choosing either of the two ETFs often mentioned (WOOD or CUT) or one of the four main US timber REITs (Weyerhauser, Rayonier, Plum Creek, or Potlatch), and mentioned that I still had hopes of investing in a Canadian forest company.

Canada has a lot of forest – it comes third in the global ranks, after Russia and Brazil. Unfortunately for those of us who want to own trees, however, the Canadian government sees the nation's forests primarily as a public good. From the nonprofit Tree Canada:

94% of Canada's forests are publicly owned. The other 6% is privately owned by more than 425,000 private landowners. Of that public forest, the federal government owns 23% and the provincial government owns 71%.

So if you look at the annual reports of the large Canadian forest product companies, you will find that they have long-term “crown tenures” – leases giving them rights to harvest trees on public land – but most own very little forest outright. This might not be such a bad thing, but the government can change the rules on leases more easily than it can revoke private property rights, and I want to directly own, if possible, the productive asset.

There are, as mentioned in the quote above, some private forests. And in fact the number quoted above, that 6% is privately owned, understates the importance of the private fraction, because much of the public land is set aside in preserves and is not harvested. According to a useful overview document entitled Canada's privately owned forest lands,

Canada has a forested area of 418 million ha [hectares]. It is the third largest national forest in the world after Russia and Brazil. 244 million ha is classed as capable of timber production. Approximately 210 million ha of this 244 million ha of timber productive land is non-reserved multiple-use forest. The balance of 34 million ha is in protected areas. Of this 210 million ha some 23 million ha or 11% is in private ownership. This area can be roughly divided into 5 million ha of industrially owned private forest land and 18 million ha of family-owned private woodlots. The annual production from all private forest land is 36 million m3 or about 19% of Canada’s wood supply.

If we compare Canada’s privately owned forest land to the area and wood production of national forests as found in the FAO forest data-base we find that Canada’s private forest lands would be 11th in area and 8th in wood production. …

The 425,000 ownerships average 45 ha in size. …

Privately owned forest lands are found in all regions.

The ownerships are concentrated in Eastern Canada and contain a high percentage of Canada’s tolerant hardwood resource.

Productivity per ha is about double the average productivity of publicly owned forest lands.

After reading this, one might hope that there would be some small companies owning their own piece of forest outright.

Forest Industries, an industry association, maintains a portal site with a lengthy list of forest product companies in Canada. I went through this list and checked every company. Unfortunately, the only companies that source most of their timber from private lands are themselves private companies. The closest I came in a publicly traded company to what I'm looking for was Western Forest Products Limited, which does own a fairly large amount of forest land. But their 2011 Annual Report says, “More than 95% of the timber we harvest is from Crown land.”

There are still other options. I had a very interesting conversation with a professional forester, which will be the subject of another post.