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 smallholders who have identified that who have potentially plantable land. Land used in forestry is treated as two step decision process, where first a landowner must decide whether they would consider plantation tree at all, and secondly how much land would be planted in trees. With this approach a double hurdle model was used to study planting decision. Using survey data obtained from 349 landholders in four South Island districts, the results of the study indicate that property-specific factors, such as property size and years of ownership, and ownership being part of partnership, as well as landowner characteristics such as perceptions of tax policies, being favorable forestry, off farm income level and expectations of increasing log prices were correlated with the decision whether to establish plantation forest. The factors determining extent of land use in forestry is 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 beef and sheep production