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Stumpage prices: a review of influential factors.

Prix du bois sur pied coupes: examen des facteurs influents/ Precios de la madera en pie: Una revision de factores influyentes

INTRODUCTION

The timber stumpage price (standing timber prices, stumpage value) is defined as the value of timber as it stands uncut on the stump (Nieuwenhuis 2010). A stumpage price, according to Hultkrantz et al. (2014), reflects the timber value in association with the right of a buyer to harvest the standing timber from land owned by an individual, company or organization. The landowner would typically earn the timber value, and the buyer of the timber would bear the cost of felling the trees and transporting the timber to a woodyard or manufacturing facility. Relatively good stumpage prices can be viewed as incentives for landowners to invest in forest management (Sendak and McEvoy 2013), but conditions can exist where stumpage prices are negative (Roser et al. 2011). Such cases are often termed as below cost timber sales and typically can be implemented by public landowners who desire to support wood product manufacturing industries and achieve other goals such as increasing employment. Below cost timber sales can also occur when the landowner wants to conduct certain timber stand improvement activities that would not be covered by resulting revenue from timber sales.

Much as it is the case for all goods and services in the economy, the price of stumpage is determined by the interaction of the supply and demand. But in the case of stumpage, the market for stumpage eventually depends on the supply of and demand for final products such as paper or housing or wood pellets. As the demand for stumpage results from the demand for final products derived from it, it is referred to as derived demand. Stumpage prices represent residual values obtained by subtracting from the price of a final product the cost of harvesting, delivery, and subsequent processing. It follows that stumpage prices will react to changes in prices for final products as well as any intermediate products or production inputs.

A general stumpage price calculation that originates with a final manufactured product value (also referred to as the residual value system) is:

PS = PF -- MC - LC -- TC -- OC -- PRM - PRL (1)

where:

PS--stumpage price PF--manufactured end-product unit price MC--manufacturing cost LC--logging cost TC--transportation cost OC--other costs linked to the sale PRM--profit on manufacturing PRL--profit on logging

This approach is based on the work of Holley (1970), and assumes that the amount of money a buyer of stumpage is willing to pay can be determined by subtracting from the manufactured unit price all of the appropriate costs that were used to transform a tree into a product sold in a market (Leefers and Potter-Witter 2006). If the buyer of the wood is not the manufacturer of the end-product, the delivered price is the basis from which the appropriate costs would be subtracted and is defined as:

DP = PF -- MC - PRM (2)

where:

DP = delivered price

However, some have noted that the prices paid for stumpage do not necessarily correspond to the difference between the value of the timber at the end market and the intermediate harvesting and transportation costs (Kolis et al. 2014), as the knowledge of values maintained by both buyers and sellers and their beliefs of future economic conditions can influence stumpage prices (Steer 1938). This could be a case when stumpage is acquired with sale terms allowing for a relatively long period to cut it (e.g., terms stating that stumpage will have to be harvested within a year or more from a date of purchase). In such cases, a buyer would benefit from timber growth occurring from the time of the acquisition until actual harvest and also possibly from improved market conditions. At the same time, a buyer would have to account for the risk of deteriorating market conditions. Ideally, when property rights are clearly defined, stumpage prices should reflect the value of the raw material (timber or biomass) relatively well (Huhtala et al. 2003). In cases where stumpage prices do not correspond to the difference between the value of the timber at the end market and the immediate harvesting and transportation costs, both the buyers and sellers have been known to rely on the transaction evidence which is referenced later.

In a competitive market, manufacturing facility managers attempt to balance the price of manufactured products with the volume and cost of raw materials (Wagner and Sendak 2005). Therefore, stumpage prices are important to a manufacturing facility because they represent a significant portion of the variable cost of wood product manufacturing, which affects the profit of the manufacturing facility. Moreover, as we noted, stumpage prices are important to a forest landowner because they directly affect the profit a landowner might receive from growing timber (Hood and Dorfman 2015). For example, timber sales in Sweden are the main source of income from forests, and stumpage prices are seen as one of the most important factors affecting a forest owner's decision to sell (Kolis et al. 2014). Thus both ends of the supply chain are concerned about the price for the raw material, each with respect to their own perceived net benefit. However, managers of the logging and transportation systems involved in moving timber from its growing site to a manufacturing facility are also concerned about the stumpage price, particularly in situations where the delivered price to a manufacturing facility is fixed or non-negotiable. In these cases, when logging and transportations costs rise, the only relief may be through a relaxation of the stumpage price (Kilgore and Blinn 2003) as long as landowners are willing to sell at a lower prices. Government, academic, and corporate analysts are also interested in stumpage prices as they facilitate understanding of timber markets and trends (Sendak and McEvoy 2013). Variations in future stumpage prices represent a source of risk for forest management decisions (Knoke et al. 2001). Influences on the desirability of forestry as an investment opportunity have thus captured the attention of analysts around the world. In extreme cases, stumpage prices and the manner in which they are determined can lead to international trade disputes, as evidenced by a long-standing U.S. trade restrictions on Canadian softwood lumber imports and efforts to resolve this issue through a series of Softwood Lumber Agreements (Sedjo 2006).

For eight decades, researchers have been reporting the dependency of stumpage prices on various physical, market, and management factors. For example, stumpage quality as expressed by log size (Buongiorno and Young 1984, Jensen et al. 1940, Puttock et al. 1990, Sendak 1992), log merchandizing practices (Brundage 1942), and accessibility (Steer 1938) have been long-established as factors that may affect stumpage prices. In instances when stumpage sales may be driven by forest health or forest salvage efforts (Russell et al. 2017) stumpage prices may be affected in various ways. This was the case with Hurricane Hugo (1989) in the southern United States. Even though less 25% of the damaged timber was expected to be salvaged, the immediate excess of wood in the pulpwood market led to subsequent stumpage price reductions for landowners (Janiskee 1990), although prices for wood used by non-pulpwood markets increased because higher quality logs were in short supply (Syme and Saucier 1996). Further, when there is a need to intensify harvesting activities in one area as a result of the need to salvage timber, a reduction in wood available for sale in other nearby areas may be observed (Russell et al. 2017), perhaps affecting stumpage prices in those other places.

The sale size has also been identified as a factor influencing stumpage prices (Jackson 1987) as was distance to mill (Huang and Buongiorno 1986, MacKay and Baughman 1996, Puttock et al. 1990, Steer 1938). Also, the type of landowner may be influential in determining the stumpage price received as well as any contractual provisions (Munn and Rucker 1995). For public lands, sale development costs may impact the net return (Jackson 1987). The degree of competition for stumpage was noted as a factor that may increase stumpage prices paid to landowners (Carter and Newman 1998). Further, auction type has been shown to influence stumpage prices; sealed-bid sales may result in higher prices than oral auctions (Wiener 1979) depending on the perceived advantages bidders may have over each other (Johnson 1979).

The objective of this study was to review recent literature published in the last 15 years (2000-2015) regarding the factors currently affecting stumpage prices, to summarize the trends observed in North America and Europe, and to propose additional work that will complement the body of knowledge. Using the recently published literature, we summarized the key factors that were reported to have an important impact on the stumpage price received by a landowner from the buyer for the right to harvest stumpage.

METHODS

The literature review involved the search of peer-reviewed journals published in English that were judged the most likely to have contained papers assessing stumpage price trends. We focused on the review of papers published in years 2000 to 2015. The review was then complemented with a keyword search (using "stumpage price") through the Web of Science, and a thorough search of the literature cited sections of each paper obtained. The review encompassed the following journals: American Journal of Agricultural Economics, Biomass and Bioenergy, Canadian Journal of Forest Research, Empirical Economics, Environmental Management, European Journal of Forestry Research, Forest Ecology and Management, Forest Policy and Economics, Forest Products Journal, Forest Science, Forestry, Forests, International Forestry Review, Journal of Forest Economics, Journal of Forestry, Northern Journal of Applied Forestry, Silva Fennica, and the Southern Journal of Applied Forestry. The results of the review are summarized in eleven general areas where an impact on stumpage prices was emphasized or suggested.

RESULTS

The results are structured in a manner that begins with broad global and national issues that may affect stumpage prices paid to forest landowners, and progresses toward the site-specific characteristics of a timber sale that can further influence stumpage prices.

1. Global and national demand for forest products

Some researchers have noted that changes to national or regional economies (e.g., an economic recession) can have an affect on stumpage prices through changes in the rate of housing development, in the various wood products needed by this sector of the economy, and in the demand for other wood products (Adams 2002, Hood and Dorfman 2015, Malaty et al. 2007, Parajuli and Chang 2015, Sendak and McEvoy 2013). Zhang et al. (2011) found that stumpage prices are determined by housing starts, business cycles, and issues related to international trade. These broad-scale influences on stumpage prices are important, and suggest that stumpage prices depend on factors beyond the local level. The underlying market forces during and after significant changes to national or regional economies can have mixed results on stumpage prices, however, depending on the product that is under consideration. Exports of cherry (Prunus serotina Ehrh.) lumber from the midwestern United States, for example, declined considerably during the recent recession, and this resulted in a decline in lumber prices and a subsequent decline in stumpage prices (Luppold et al. 2014). Also, certain forest products can become substitutes for other more expensive products, and this can increase the stumpage prices observed for the timber used in the substitutes. One example would be the substitution of oriented strand board (typically made from smaller, pulpwood-sized logs) for plywood (typically made from larger, higher quality logs) in many applications (Fridley 2002). In another example, Sendak and McEvoy (2013) noted that red maple (Acer rubrum L.) and yellow birch (Betula alleghaniensis Britt.) sawtimber stumpage prices increased during a period of time when stumpage prices for other hardwood products declined, perhaps because these species were seen as substitutes for sugar maple (Acer saccharum Marsh.) sawtimber in the manufacture of wood products.

For some forest products, a short-term positive relationship has been observed between the end-product (e.g., softwood lumber) price and the associated stumpage price (e.g., softwood sawtimber stumpage price), but these relationships may not hold for all products (e.g., pulp, paper, and pulpwood stumpage prices) (Zhou and Buongiorno 2005). For some forest products a long-term relationship between the stumpage price and end-product prices (e.g., lumber) has also been observed (Yang et al. 2006). In essence, forest landowners may receive lower prices for stumpage when there is a relaxation of demand for the end-products made from the stumpage (Hetemaki et al. 2004). Therefore, it has been suggested that global, national or regional policies and economies that affect the demand of a product can affect regional stumpage prices for certain types of wood (Zhou and Buongiorno 2005). This issue is thus linked to changes in global and national economies.

However, consumer and manufacturing preferences for certain products can change, and these can subsequently affect the demand for end-products, which can affect the stumpage prices received by landowners (Adams 2002, Duval et al. 2014). Further, on the demand side one can observe the impact on stumpage prices for many forest products as a result of changes in mill consumption (downtime, closure, expansion, or operating improvement) and inter-regional shifts in demand for stumpage (Sydor and Mendell 2008). However, pulpwood prices often depend on the global demand for paper products and the general state of the global economies. Substitution of commodities for general consumptive purposes also can influence stumpage prices. For example, one may substitute fuelwood (firewood) for heating purposes with fossil fuels, but this action depends on the price of the fossil fuels or renewable energy policies implemented as part of climate change mitigation actions (Sendak and McEvoy 2013).

Due to variations in the structure of wood processing industries among countries, it is difficult to determine the impact of import and export of wood products on stumpage prices (Huhtala et al. 2003). However, as we noted earlier, national or regional factors that affect the demand of a product can then affect regional stumpage prices for certain types of timber (Zhou and Buongiorno 2005). Imports of wood products from other countries can act to reduce the demand for timber grown domestically which can affect stumpage prices (Malaty et al. 2007).

2. National environmental policies

Examples of recent environmental policy impacts that may influence stumpage prices include conservation policies, interest in carbon sequestration, and forest certification schemes. The impact of changing conservation policies, such as the listing of a wildlife species as threatened or endangered, can affect stumpage prices in both positive and negative manners. One notable set of national environmental policies that had an effect on regional stumpage prices concerned the northern spotted owl (Strix occidentalis caurina Merriam) controversy that was centered in the Pacific Northwest of the United States. This action by the United States government had a significant negative influence on the western United States softwood lumber supply (Majumdar et al. 2010) due to reductions in harvests from public lands. Harvests from private lands were therefore heavily relied upon to meet the needs of the manufacturing sector, and the increased competition for wood arising from private land affected stumpage prices positively (Saphores et al. 2002). The effects of this set of environmental policies were observed in the southern United States as well, as shifts in supply led to increases in prices for certain types of stumpage (Parajuli and Chang 2015). Given recent high interest in reducing greenhouse gas emissions, carbon sequestration policies that focus on forest use have also been suggested to have the potential to reduce the available stumpage supply in a local area or region, which can lead to short-term increases in stumpage prices (Nepal et al. 2013). The overall outcome of such policies, however, will depend on specific formulations related to spatial and temporal scales and carbon pools and storage methods recognized. One group of approaches advocates reductions in tree harvesting as they may recognize or value only carbon stored in live biomass. Other policies may allow harvesting and result in more intensive forest management if storage of carbon in wood products is considered beneficial (Miner et al. 2014), which could coincide with rising stumpage prices. As we noted, stumpage prices can also be affected by policy initiatives such as forest certification. Forest certification was found to impact stumpage prices to a small degree in the southern United States, positively for private and otherwise non-certified landowners, and negatively for certified landowners (Brown and Zhang 2005).

3. National ownership differences

The manner in which a country was settled, the institutions for managing land tenure, and the events that have led to significant land tenure adjustments vary considerably around the world. Sedjo (2006) suggests that national differences in land ownership and tenure can result in differences in stumpage prices observed for similar wood products, and uses the differences between the United States and Canada as an example. In this case, stumpage fees in Canada are determined largely by administrative procedures and processes associated with publicly-owned Crown lands within each province rather than by the market forces associated with private and public lands in the United States. Even within the United States there can be distinct differences between public and private forests concerning sale sizes, ownership objectives, management approaches, and access to timber market intelligence. Governmental organization and management of forests in some areas of the world can also produce situations where markets can be flooded with subsidized timber produced by local forest managers, effectively reducing delivered prices for timber, and hence stumpage prices to the landowner (Eikeland et al. 2004).

4. Regional and local market conditions

Stumpage prices can react to factors that are specific to a local or regional forest products market (Dahal and Mehmood 2005, Sendak and McEvoy 2013). A lack of competition for stumpage within a region (Niquidet and van Kooten 2006) or relatively low wood processing capacity within a region (Malaty et al. 2007) can lead to lower stumpage prices, as can the local quantity and quality of stumpage offered for sale (Duval et al. 2014, Holmes et al. 2002). For example, future increases in the hardwood growing stock of the northern United States along with the high amount of private ownership found there may result in increased harvests of sawtimber and pulpwood products and an associated increase in stumpage prices (Wagner and Sendak 2005). This is conditioned on the presence or development of the wood manufacturing industry which may be able to capitalize on the increased resource availability. With respect to geographically adjacent regions, while various differences in topography and timber quality may be evident, the impact on stumpage prices likely depends on the product that is being assessed (Prestemon and Holmes 2000). Prices observed in the adjacent regions may be correlated (Mei et al. 2010) or affected by the price behavior in another region (Malaty et al. 2007). As suggested earlier, markets outside of a local area can influence prices paid for wood. Policies affecting these other markets may influence the tension between markets, and the potential interactions, such as increased imports of Russia should be considered when analyzing other region's (e.g., Finland) stumpage prices (Malaty et al. 2007). Imported or exported timber can partly affect the value of domestically-produced supply in a region, and this inter-regional trade can also affect demand and prices in other regions. For example, increases in imported timber may negatively affect stumpage prices received by local landowners.

5. Institutional and organizational differences in stumpage appraisal

The traditional approach to determining the maximum amount of money a timber buyer can pay for stumpage was alluded to in the introduction of this paper. After subtracting all of the appropriate costs involved in transforming a tree to a product sold in a market from the end-market product price, one might reasonably obtain this value. However, differences in how institutions and organizations develop and offer sales may have an impact on the stumpage price received. For example, the approach used to determine the minimum acceptable bid (the reservation price) for stumpage can differ within public agencies in the United States, and this can affect the quality of the bids received (Leefers and Potter-Witter 2006). The time frame of recent sales (transaction evidence) used in determining the minimum acceptable price, the process for handling mixed species and mixed products within a sale, and any price adjustments applied can vary from one organization to the next. In addition, changes to the operational environment and strategies employed by a timber buyer can negatively or positively affect stumpage prices (Malaty et al. 2007).

6. Sale characteristics--stumpage quality

Various tree characteristics within an individual sale area (Sydor and Mendell 2008), such as average tree diameter, the relative quality of the trees (Duval et al. 2014), and the relative value of the trees (Brown et al. 2012) can influence stumpage prices received by forest landowners. In general, when harvest costs decline, one might expect stumpage prices to increase. The volume per tree can affect harvesting costs and affect the product class into which a tree falls (Huebschmann et al. 2004). A higher volume per tree, which may result in a lower harvesting cost in general, may lead to higher stumpage prices received by a landowner. Positively or negatively, the assortment of products within a sale area can affect stumpage prices (Kolis et al. 2014, Leefers and Potter-Witter 2006). The composition of tree species can affect stumpage prices, and the total volume within a sale area can result in economies of scale with respect to harvest costs, which can affect stumpage prices (Huebschmann et al. 2004, Kilgore and Blinn 2005, Kolis et al. 2014, Leefers and Potter-Witter 2006). Higher tree densities (or volume) per unit area can result in higher productivity among harvesting machines, reducing harvesting costs and perhaps increasing stumpage prices (Brown et al. 2012, Leefers and Potter-Witter 2006), but the impact on stumpage prices is also a function of the management treatment applied (e.g., clear cut or group selection cut) (Kolis et al. 2014). The growth of forests is an important determinant of stumpage prices, particularly when increased tree size results in changes in product grade (quality) (Wagner and Sendak 2005). Others have observed that the type of forest (plantations vs. naturally regenerated stands) at a given age may also be a significant factor in observed stumpage prices (Sydor and Mendell 2008). The timber type characteristics (size of trees and composition of tree species) can be related to harvest efficiency and prices received at mills. For example, older plantations have been observed to bring about higher stumpage prices than naturally regenerated stands of the same age in an area of the southern United States (Sydor and Mendell 2008).

The purpose of a timber sale may be driven by forest health or salvage considerations, and these can thus have an effect on stumpage prices. Damage to trees from fire, wind storms, and other agents can effectively lower stumpage prices received by landowners (Kolis et al. 2014, Niquidet and van Kooten 2006). Irregularly-occurring natural events, such as wind storms or fires, can cause a short-term supply shock (positive or negative) that is then associated with a stumpage price change and perhaps a long-run influence on harvest levels and residual forest stock (Prestemon and Holmes 2000). In such instances, stumpage prices may also change because timber quality may have changed and because of the time length available for removing damaged trees. The salvage of forests in the northeastern and southern United States in recent years in response to insect outbreaks (Parajuli and Chang 2015, Sendak and McEvoy 2013) and the salvage of forests in the southern United States and Europe after wind storms (Prestemon and Holmes 2000, Nieuwenhuis and O'Connor 2001) have been noted as having an effect on regional stumpage prices for certain products. Increases in harvest costs and uncertainties associated with end-product quality due to tree damage (bending and breaking) are particularly associated with lower stumpage costs for wind-damaged forests (Nieuwenhuis and O'Connor 2001). Further, in most cases a market excess of some products (i.e., lower valued products such as pulpwood), and a market scarcity of other products (i.e., higher valued products such as sawtimber) may occur immediately after the need for the salvage of forest products. In some specific instances where a quarantine on the movement of damaged timber is in place, competition for wood may be lacking, and stumpage prices received by landowners may decline. The case of ash trees (Fraxinus spp.) being attacked by the emerald ash borer (Agrilus planipennis Fairmaire) in Ohio might be used an example of this effect (Duval et al. 2014).

7. Sale characteristics--sale size

Increases in the size of a sale area might result in stumpage price premiums due to harvest cost savings (Sydor and Mendell 2008). Larger sale sizes may result in higher productivity rates for machines (less idle time) due to lower moving costs between sale areas, which may allow a logger to apply their fixed ownership and operating costs to a larger set of production units (Russell et al. 2017). An increase in the sale area might also act to reduce competition for sales, as some loggers may not have the ability to bid on a sale, and this can effectively decrease the stumpage price a landowner might otherwise receive on a per-unit area basis (Brown et al. 2012, Russell et al. 2017). Larger sale areas may require more costly logging systems in some areas of the world, however. The effect of policies on stumpage prices received by landowners may be further complicated by contracting requirements placed on sales by various agencies or organizations (Leefers and Potter-Witter 2006).

8. Sale characteristics--operability and accessibility

The land on which a forest resides can influence the ability of a timber buyer to extract the wood resources. Some call this the loggability or operability of the forest, and it is related to surface roughness, slope, and wetness. Natural events pose a consistent risk to landowners with respect to stumpage prices. Annual expected weather conditions (rain, snow, etc.) are often considered in wood procurement operations, and these may have an impact on stumpage prices due to limited operability of machines on wet ground. For example, mills may want to increase the inventory in a woodyard prior to a cold or rainy period to offset the limited supply that may arise during these periods or pay a premium for timber tracks which can be logged in wet weather. Although typically a logging contract may cover a long period of time (one to five years), the season of the potential harvest and the timing of the stumpage sale can both influence the stumpage prices received by landowners due to differences in competition and immediate restrictions on harvesting operations (Dahal and Mehmood 2005, Kolis et al. 2014, Saphores et al. 2002). For example, a short time window to harvest an area may negatively affect stumpage prices, while a sale that facilitates a longer period per year of acceptable harvesting conditions may result in higher stumpage prices for a landowner (Sydor and Mendell 2008) and conversely seasonal operating restrictions may reduce stumpage prices (Brown et al. 2012). Brown et al. (2012) suggest that stumpage prices are greater during October, November, and December in Minnesota due to the need for loggers to satisfy mill requirements during a period of time (winter) when the largest volume of wood is harvested in this region. In other words, during winter months mills are trying to meet much of their log requirements and this increased demand raises stumpage prices.

The time of year associated with the logging and the harvesting system chosen for logging may affect the harvesting cost, which can affect the stumpage price received by the landowner. Stands with seasonal harvest restrictions have to be harvested during suitable weather conditions, while stands with no seasonal harvest restrictions can be harvested according to demand (Brown et al. 2012). Accessibility (distance to mill and road construction requirements) is an important physical factor that can affect stumpage prices. Lower stumpage prices can partially be explained by the distance that timber would have to travel from a growing site to a mill or woodyard due to the transportation costs involved (Brown et al. 2012, Malaty et al. 2007); the effect of longer transportation distances depends on the product hauled, however (Kolis et al. 2014). A longer transportation distance leads to higher costs for harvesting and hauling, which may affect a buyer's willingness to pay for stumpage. Both the primary transportation distance from the stump to the nearest landing and the secondary transportation distance from the landing to a mill (or woodyard) can have an impact on the costs involved, and therefore might affect stumpage prices. In some areas of the world, an extensive transportation distance from the growing site to a mill or woodyard may completely diminish the income expected by a landowner as expressed through the stumpage price (Roser et al. 2011). These impacts are complicated for an individual sale when the wood harvested is routed to multiple mills or woodyards (Leefers and Potter-Witter 2006). Transportation costs may be reduced through the back-haul of products (e.g., transport of raw material to a mill, back haul from the mill of finished products to a nearby market) (Sendak and McEvoy 2013), and these efficiencies could plausibly be reflected in the stumpage price received.

9. Sale characteristics--landowner characteristics

The value of timber to a landowner depends on a number of factors that include, but are not limited to, the landowner's characteristics, the management costs, and the discount rate assumed for alternative investments. For private lands, the age of a landowner or the requirements of a landowner for revenue may influence the time that their wood is available for sale. If no flexibility is available in the timing of the sale, the landowner may achieve lower stumpage prices than anticipated. Similar situations can occur when the estates of deceased landowners wish to liquidate the timber (and perhaps land) asset and distribute the proceeds to the heirs. Competition for a landowners' capital also include potential returns from alternative financial instruments such as mutual funds, stocks, and bonds (Wagner and Sendak 2003). When an alternative investment is perceived to produce a higher rate of return, a landowner may decide to offer their wood for sale at the current stumpage price level, rather than wait to determine whether it might increase.

Further, in mixed ownership landscapes, the type of owner of a forest may have an influence on the stumpage prices obtained for their resources. Land ownership patterns were found to influence stumpage quality and availability, and consequently prices between timber supply regions (Linehan et al. 2003). In the southern United States, large commercial forestland managers seem to obtain higher stumpage prices due to higher levels of forestry or timber selling experiences than public or small private landowners (Dahal and Mehmood 2005, Sydor and Mendell 2008). Therefore in heterogeneous ownership environments, different landowner groups within a forested region can have different capacities for managing forests, which may be reflective of their objectives and sets of constraints that guide their activities. For example, private landowners in the southern United States may be interested in selling timber to supplement their income, but they may also place higher value on non-timber amenities (e.g., recreational activities) than commercial forestland managers might. However, although some land areas may seem to contain greater non-timber amenity values, stumpage prices tend not to reflect the quantity or quality of non-forest amenities within a sale area (Huhtala et al. 2003).

10. Sale characteristics--degree of competition

Sale mechanisms can include oral auctions, sealed bid sales, and otherwise negotiated agreements. The number of people involved may influence the stumpage received by the landowner. For further background on this topic, Marty and Preget (2010) provide a nice summary of common sale mechanisms employed in France. One challenge in assessing stumpage prices concerns the market structure (e.g., volume produced, number of mills receiving harvested timber, etc.) and the level of competition for wood during an auction, if stumpage is sold through this method. Some have suggested that larger firms (buyers of wood) may pay more for stumpage due to efficiencies and other factors that affect their competitiveness in the market (Leefers and Potter-Witter 2006). Increased competition for timber also increases the stumpage prices obtained by forest landowners (Carter and Newman 1998, Dahal and Mehmood 2005). These issues are related, for as we noted earlier, some firms may not have the ability (e.g., capital, equipment) to bid on certain sales, and this could have a negative effect on stumpage prices (due to lower competition) in some areas of the world (Brown et al. 2012). However, in Minnesota, Brown et al. (2012) found no significant differences among the prices paid for stumpage at regular auctions; one explanation of this can be that a local area may have a strong small logging business sector where stumpage prices are unaffected when large firms are removed from the bidding process. Further, certain auction devices might be manipulated to effectively lower the stumpage value returned to the forest landowner, such as the bid-skewing issue for sales where the seller has mis-estimated the species or products within the sale area (Haley 2010). When buyers believe that the seller estimated incorrectly the volume of one or more species they can manipulate the auction by submitting winning bids which will yield lower harvest revenue. This may occur because the winning bid is determined based on volumes estimated by the seller while sale revenue is based on harvested volumes. Papers in our review did not include a detailed comparison of results with respect to stumpage prices for types of sales mechanisms, such as sealed bid or oral auction. However, we acknowledge that sale mechanisms can suffer from issues noted above (and others) that may affect the stumpage price received by the landowner.

11. Sale characteristics--organizational policies, contract terms, and technology

Organizational and regulatory policies and procedures related to timber sale design and program administration, harvest regulations, and contractual provisions can affect the price paid for stumpage (Brown et al. 2012, Marty and Preget 2010). Certain contract provisions can act to lower stumpage prices received by forest landowners (Dahal and Mehmood 2005). Sydor and Mendell (2008), and Brown et al. (2012) also found that harvest restrictions lowered the willingness to pay for standing timber. Reserve prices (minimum acceptable bid price set by the seller) are one example, and others might include specific guidance on the location of roads, riparian areas, or landings. These impacts might also be related to the contract length or the type of buyer that is qualified to obtain the contract. At least in one case, longer contract lengths had only a minor effect on stumpage prices (Brown et al. 2013). Papers in our review did not include a detailed comparison of timber payment methods influence stumpage prices.

For sales that are developed specifically for small timber harvest firms (effectively reducing competition) the resulting effect on stumpage prices has been mixed (Brown et al. 2012). Given that stumpage prices are essentially the residual values after subtracting logging and transportation costs from delivered wood prices, any change in logging and transportation costs may affect stumpage prices. Some have speculated on the role that major technological shifts in timber harvesting systems may have on stumpage prices in Sweden (Hultkrantz et al. 2014) For example, technological shift in harvesting systems such as harvesters and forwarders equipped with computer and sensor technologies might lead to higher utilization and lower harvesting costs, thus affecting stumpage prices (Zhang et al. 2011). With regard to silvicultural activities and tree growing technologies, methods which increase volume increment of trees over a period of time can act to improve the stumpage prices received for certain products (Smith et al. 2012).

From a timber purchaser's perspective, recent transaction information helps them to establish a ceiling product price for a specific tract of timber (maximum willingness to pay); on the seller's side this information helps them to identify a product reservation price based on tract characteristics (Sydor and Mendell 2008). Kolis et al. (2014) found that timber buyers are expected to be familiar with recent market prices, but particularly smaller private forest landowners who do not regularly sell timber may lack specific knowledge regarding the price formation. Unless forest consultants are used, this lack of reliable information can lower the negotiation power of private forest owners, and may lower prices that they receive for their stumpage. Landowners considering a timber sale would be judicious in their planning to learn about market trends, which could present a challenge if they do not sell timber frequently. Nevertheless, private landowners and industry have historically not worked closely together. Owing to this lack of coordination, smaller private landowners may lack an understanding of timber management, marketing, and procurement practices. A professional forester, who can mark trees for harvest and knows local markets, can be a helpful in organizing a timber sale and developing forest management plans (Duval et al. 2014). Landowners seeking this assistance may receive higher prices for their timber through competitive bidding if conditions are suitable for stumpage auctions. The competitive bid process can provide the seller more power to negotiate other aspects of a sale. The sales terms, particularly its value, how payment is to be made, and at what time, should be clearly spelled out in a written timber sale contract (Duval et al. 2014).

DISCUSSION

This review indicates that stumpage prices remain a topic of strong interest in forested regions of the world. As indicated by this review, stumpage prices can be and are affected by numerous factors but it appears much more challenging to precisely identify the type and extent of influence attributable to any particular factor. This task is made especially difficult because markets are dynamic and change over time and space as does the role of factors influencing stumpage prices. So while it appears that we have a good understanding of what factors may potentially influence stumpage prices, their precise impact over time and space is much harder to assess.

Many publications from 2000 to 2015 attempted to assess the impact of various factors which were considered relevant to particular national or regional settings on stumpage prices, notably after pronounced changes in policies and market conditions. It also appears that over the period of the review, increasing attention has been paid to international and global factors. This, in part, likely reflects the progressing globalization, shifting demand for forest products, and the growing importance of international trade in forest products. This reflects the increasing recognition of differences between countries and regions in terms of their economies, policies, forest tenure, and forest market development. Further, as timberland is increasingly recognized as an attractive investment asset, there is more interest in assessing how stumpage prices can contribute to financial returns realized from investing in timberland (e.g., Mei et al. 2010). Finally, there is a growing recognition of the dynamic nature of forest markets, and new approaches are being developed to account for changing (switching) nature of stumpage market drivers (e.g., Hood and Dorfman 2015). These trends are expected to continue.

There may be a number of other unobservable factors that are important determinants of stumpage prices received by forests landowners. These include the juxtaposition of timber sales with respect to other nearby timber operations, which may act to reduce the equipment moving costs of a timber purchaser, the effect of interpersonal experiences that people have with one another (buyer, seller, administrator, appraiser) may have on stumpage prices, and the needs of timber purchasers to maintain employment of their logging crews or to address contractual obligations of wood processing facilities. Each of these may also be viewed as open areas of research with respect to stumpage prices received by landowners.

Stumpage prices may seem to be limited from forces above (the mill or the buyer) in the supply chain rather than forces below. Buyers of wood typically will not pay stumpage prices above their maximum willingness to pay (yet they may do so in the short-run if they need to fulfill a contract or keep labor employed). However, sellers may accept lower stumpage prices for poor quality timber (Kolis et al. 2014), to get silvicultural work performed (e.g., pre-commercial thinning) or because they lack reliable information about the current value of the wood. In any event, both timber buyers and sellers can benefit from access to prior transaction information.

Timely applications and extensions of published research in other areas of the world seems to be an open area of future research. The dynamics associated with the factors involved in determining stumpage prices may need further analysis in regions where limited information is available in this regard or where it becomes quickly dated. Hultkrantz et al. (2014) suggest that it may be of interest to further study whether findings from one region of the world can be corroborated by similar findings from other places. Perhaps there are forces or factors that seem to preserve long-term price stability (possibly in cases where wood volumes adjust proportionally more than prices in response to changing market conditions) within stumpage markets and thereby inform forest products business-cycle fluctuations and global structural changes. Information efficiency among wood markets and the effects of the relationships among wood markets in different regions may also be of interest today as we have moved to a global market for many wood products (Malaty et al. 2007). Finally, it should be noted that as stumpage price data sets become larger and more robust, perhaps also including various sale characteristics, it should be possible to revisit old questions and answer them perhaps more definitively. The increasing number of

observations might facilitate the development and use of new statistical methods for this type of application. This fact alone should also allow for the expansion of new analytical tools for explaining and predicting the behavior of stumpage prices.

Consider, for example, stumpage information gathered by TimberMart-South, a price reporting service based in the southern United States. This region, where private forests dominate the landscape, is the world's largest supplier of timber traded as stumpage (Oswalt et al. 2014). Pine stumpage sale characteristics published by TimberMart-South includes, among other factors, timber sale tract size, harvest type (clearcut or thinning), sale type (negotiated or bid), number of bids, and contract type (lump sum or pay-as-cut) (Hood et al. 2017). Over the last decade the most prevalent timber sale tract size was 51 to 100 acres (21 to 40 hectares) which accounted for about 30 percent of all sales. Approximately 55 percent of sales where smaller than 100 acres (40 hectares), while sales larger than 201 acres (81 hectares) accounted for another 15 percent. Slightly over 60 percent of reported sales were clearcuts, compared to thinnings, which represented nearly 40 percent of sales across the region. In 2016, approximately 60 percent of sales were negotiated. This represents a change compared to the period prior to the economic recession of 2008. In the two years preceding the recent economic recession, most stumpage was sold through sealed bid auctions, but since then more than half sales were negotiated. Also, when considering bid sales, the number of sales with small number of bidders (1 to 3) increased from 40 percent in the last decade to about 50 percent in 2016. Sales with a larger number of bidders (7 to 9, and 10 or more people) in 2016 accounted for 12 percent of all bid sales, compared to 25 percent for the last decade. Lastly, in 2016 more than three quarters of all sales were pay-as-cut contracts, which represents about 5 percent increase when compared to 10-year history.

Although peer-reviewed analyses using this data set are limited thus far, one can surmise that stumpage sale conditions have at times clearly impacted timber prices. Overall, timber tracts ranging from 51 to 200 acres (21 to 81 hectares) tended to achieve higher stumpage prices than tracts that were smaller or larger. Clearcut sales also reported higher prices than thinning sales. The same applies to bid over negotiated sales and the fact that a larger number of bidders typically resulted in higher prices. The impact of contract type was less pronounced, depending, among other factors, on the quality of stumpage being sold, with some indication that very high quality stumpage sales (e.g., including poles) could yield higher value when sold on the pay-as-cut basis. Furthermore, TimberMart-South gathers information such as grade (measure of overall stumpage quality), market conditions (degree of competition for stumpage) as well as logging conditions. These variables (better grade, stronger competition, better logging conditions) tend to have a positive impact on stumpage prices but their interpretation is more difficult as they are developed with a great degree of subjectivity by local market participants.

The TimberMart-South example above and the research included in this review indicate that several stumpage sale characteristics could be useful in explaining stumpage prices. Some of these characteristics perhaps could at times be managed by buyers or sellers trying to improve their terms of sales. The TimberMart-South information further indicates that the sale characteristics change over time as do their impacts on stumpage prices. In other words, this information depends on context, either temporal or spatial, as they relate to evolving resource and market conditions. It appears that the investigation of how the influence of sales characteristics changes is somewhat absent from the current research which provides some motivation for updated studies in cases where major changes have occurred. Furthermore, as stumpage sale characteristic datasets become more robust, existing and new methodological approaches can be used to explore this information and increase our understanding of factors influencing stumpage prices. While detailed sale information has typically been hard to come by, the use of other data sets can help alleviate some of the paucity of this information. For example, if one knows the location of a stumpage sale (e.g., a county), using other data sets one can gather perhaps useful information in terms of markets, infrastructure, and other factors deemed relevant. Lastly, while it may be possible to answer some questions about how some sale characteristics influence stumpage prices, it appears that at least some interactions are very specific to local resource and market conditions, which should facilitate an ongoing and informative debate.

CONCLUSIONS

The stumpage price obtained by a forest landowner is affected by site-specific land and forest factors, prospective buyers, local conditions related to harvesting and transportation systems as well as market competition. However, regional, national, and global issues can affect stumpage prices received by landowners for their timber. Our assessment provides a summary of recent findings related to factors affecting stumpage prices, confirming and updating work that was performed over fifteen years ago. Some additional research may be of value for landscapes where a high proportion of the land is privately owned, for regions where limited work in this regard has been conducted, and where higher-level issues may be viewed as drivers of local demand for wood products.

ACKNOWLEDGEMENT

This work was supported by the U.S. Department of Agriculture, National Institute of Food and Agriculture, McIntire-Stennis projects 1012166 and 1006236, administered by the University of Georgia. We appreciate the thoughtful comments provided by the reviewers and have incorporated some of their insights into the Discussion section of this paper.

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A. M. KLEPACKA (a), J.P. SIRY (b) and P. BETTINGER (b)

(a) Faculty of Production Engineering, Warsaw University of Life Sciences, Poland (b) Warnell School of Forestry and Natural Resources, University of Georgia, Athens, Georgia 30602, USA

E-mail: anna_klepacka@sggw.pl, jsiry@uga.edu and pbettinger@warnell.uga.edu
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Author:Klepacka, A. M.; Siry, J.P.; Bettinger, P.
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Date:Jun 1, 2017
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