Finland increases area covered by jointly-owned forests to 556,000 ha. with tax incentive of lower rate on timber sales than rate on sales from privately-owned land

Wendy Lisney

HELSINKI, Finland , March 30, 2012 (press release) – The Finnish state encourages family forest owners to merge their forests into jointly owned units. Also the state offers parts of its forests as core areas for the units.

In addition to offering individual forest areas as the seeds for new jointly owned forests, the state also provides financial incentives: the measures required to establish jointly owned forests are free of charge and income from jointly owned forests is taxed less heavily than that from other private forests.

"Revenue from timber, soil and land property sales, hunting and fishing licenses as well as from leasing land to wind farms, for example, is taxed at a rate of 28 per cent. The benefit is two to four percentage points compared to the tax rate of private forest owners," says Ms. Pirjo Havia from the Forestry Development Centre Tapio.

In a report by the Forestry Development Centre Tapio and the National Land Survey of Finland from last autumn, Havia anticipates a growing trend for jointly owned forest.

Currently, the area covered by jointly owned forests exceeds 556,000 hectares. This equals over four percent of the privately owned family forests in Finland.

The largest jointly owned forest is situated in Kuusamo, Northeast Finland. At present, it comprises more than 4,000 shareholders and 88,000 hectares. The smallest jointly owned forest covers 19 hectares.

The willingness of the joint-owners to expand the areas currently under their management and the establishment of new ones could generate a boom for jointly owned forests. The area of the jointly owned forests could grow up to 1.5 million hectares, which is 7 percent of the Finnish forests.

Companies, private families, state: all play along

Up to the 1930’s, only a few jointly owned forests were established in Finland. The busiest years of creating new units were in the 1950’s, right after the Second World War: jointly owned forests helped the drive to settle ex-servicemen and evacuees from the lands ceded to Russia as a result of the war.

Today, the promotion of jointly owned forests is one means to prevent the fragmentation of forest holdings. Larger unit sizes are desirable to improve the profitability of forestry. This serves the interests of both the state and shareholders in the jointly owned forests.

The National Forest Programme 2015 has the aim to increase both the average size of forest holdings and the profitability of private forestry. As a result of legal reforms and other steering measures by the state, the establishment of jointly owned forests has increased during the past decade.

The units established over the past decade have typically been owned by the members of a single family. Now, even companies have started to join in. Metsä Group as well as UPM offer private family forest owners a possibility to incorporate their forest holdings in the jointly owned forests established by the companies.

The state-owned forestry company Metsähallitus has launched a pilot project to test the effect of state forests on the establishing of new jointly owned forests. The company offers almost 1,000 hectares of state forest in five pilot areas around the country as core areas for new jointly owned forests.

Demand exceeds supply
Metsähallitus does have some conditions of participation. Firstly, the proportion of private forest owners must be bigger than the proportion of state or other bodies. Secondly, Metsähallitus will not assume responsibility for forestry operations in the area. After the establishment, its role does not differ from the other shareholders.

The project manager, Mr. Pekka Perttilä says that the lively demand from private forest owners was a positive surprise to Metsähallitus. The original assumption was that the idea needs marketing, but it was very soon noticed that the idea markets itself among the forest owners.

“In the end, we were able to choose from a variety of partner shareholders. Demand actually exceeded our supply of 1,000 hectares,” says Perttilä.

Joint ownership requires trust
Metsähallitus has designated a number of outlying state forest holdings for the pilot project. The forest property of Metsähallitus can be incorporated either in an existing jointly owned forest, or it can serve as the initial asset around which other forest holdings can be brought in.

Metsähallitus has its own reasons for starting the project. Apart from supporting the Government’s forest policy targets, the company intends to enhance the management of smaller, outlying state forest holdings. Therefore, the project is targeted neither to the northern part of the country – where the Metsähallitus’ forest holdings are large – nor to contiguous areas of state forest.

”Forest owners who are considering a generation change for their forest holding have been the key interest group. Often they – or their heirs – don’t have the opportunity to actively participate in management or forestry work,” says Perttilä.

The benefits of jointly owned forests are recognized and family forest owners have clearly been interested in the pilot project. Yet, many hesitate before the final step.

The question of fairness between the shareholders is one of the main issues. Many have said that ‘yes, we will join in, but we first want to see how the operations will take off.’ ”Building trust through equal treatment is the most essential thing,” says Perttilä.

One target of the pilot project is that membership in the jointly owned forests would remain open, Perttilä points out. Thus, new members could join even later, at whatever point best suits them.

The pilot project will continue until the end of the year. On the basis of the results, Metsähallitus will decide on future measures in early 2013.

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