Determinants of Forestry Investment and Extent of Forestry Expansion by Smallholders in New Zealand

While there has been a large increase in investment in plantation forestry in New Zealand by smallholders during the past decade, there are still many smallholders who have chosen not to become involved in this land use or who are using only a portion of their potentially planted land for forestry. To understand why this is the case, this paper studies two issues, the differences between those who have and have not established plantation forests, and the factors that explain the proportion of land used in forestry by small landholders who have identified that they have potentially plantable land. Land used for forest plantations is treated as a two-step decision process, where first a landowner must decide whether they would consider planting trees at all and then secondly how much land would be planted in trees. With this approach, a double hurdle model is used to study planting decisions. Using survey data obtained from 344 landholders in four South Island districts, the results indicate that property-specific factors, such as property size, years of ownership, and ownership being part of a partnership, as well as landowner characteristics such as perceptions of tax policies being favourable for forestry, off farm income level and expectations of increasing log prices were correlated with the decision whether to establish a plantation forest. The factors determining the extent of land identified as being potentially profitable in forestry actually being used for plantation forestry include forestry tax policy, expectations of increasing log prices, regional location of a property, owner’s annual income, and area used in sheep and beef production.