While investing in forest land has been a popular trend in many European nations for decades, it is a relatively new strategy and development in the Baltic States. The Baltics are covered in dense, high-quality timber—a valuable resource for the region’s robust forest products industry—however, Lithuania has drawn increasing attention from the forest investment community in recent years. As a growing, favorable market, Lithuania represents a real opportunity for those looking to invest in regional forest land.
Supply and Growth Characteristics of Lithuanian Forests
Lithuania’s total forested area is approximately 2.2 million hectares (4.4 million acres), or 33 percent of the country’s territory. The most common native tree species include high-value pine (35 percent), spruce (21 percent) and birch (22 percent), although other species include aspen and black and grey alder. Total growth stock volume is estimated to be in excess of 480 million cubic meters, and average growth stock is over 230 cubic meters per hectare.
As these numbers demonstrate, Lithuanian forests have a high productivity rate—even when compared to other Baltic and Scandinavian states. According to the Lithuanian State Forest Agency, annual forest volume increases an average of 6.2 cubic meters per hectare. (The productivity rate of Lithuanian agro-forests and natural forests is nearly the same, but the prices differ substantially.)
Due to Lithuania’s environment and landscape, which is ideal for growing forests, trees can potentially grow in excess of 30 meters (100 ft.) in height. These forests are able to produce an incredibly large amount of timber, averaging 240 cubic meters per hectare per year. For reference, other regional countries produce significantly less timber per hectare on an annual basis; Latvian and Estonian volumes average 189-203 cubic meters per hectare, while Scandinavian countries average only 120 cubic meters per hectare.
Lithuanian Forest Land Prices
According to Gintaras Montrimavičius, director of forest investment consulting company MABA FOREST, Lithuanian forest land prices also make attractive investment opportunities. Lithuanian forestland prices are 25 percent less (on average) than forest land in the rest of the Baltics, and significantly less than the balance of Scandinavia. Even given the lower quality and poorer stocking, the growth characteristics of Lithuanian forests means the investment upside is substantial. Many Scandinavian investors expect to see a continued increase in Lithuanian forest land prices, which have risen steadily since 1990.
After the first successful timber sale, many Lithuanian forest investors continue to expand their investments by acquiring more acreage, as the minimum average timber sale return is roughly 40 percent of the initial investment. In this case, it is possible to expand by purchasing one cubic meter of standing timber for €10-18 ($11-$19), cutting and selling the timber for €25-30 ($27-$32) per cubic meter (after taxes), and then continue to benefit from the remaining growing forest.
The remaining growing forest can be valuable on its own. The price of high-value, cleared forest land—where birch or spruce will replant naturally—starts at €400 ($430) per hectare, which is more than 11 times lower than Swedish forest land prices and is the lowest in the Baltic states. Investing in Lithuanian forest land brings a minimum annual return of 10 percent, which is enough to recommend this stable, low-risk investment option.
Benefits of Owning Lithuanian Forest Land
In addition to the affordability and high productivity rates of Lithuania’s forests, the country also has the most forest land for sale in the Baltic States. Prospective investors can easily find and purchase a minimum of 150 hectares (370 acres) of cleared, early-growth, middle-aged or mixed forest land that will offer a monthly return on the investment.
However, the vast majority of forest land parcels are currently divided into small units, typically 3-10 hectares (7-25 acres). To promote faster privatization and consolidation, amendments were made to the Lithuanian Forest Act that allow the owners of the neighboring forest land parcels the priority right of acquisition. This fact notwithstanding, it does not mean that investors can buy only small forest plots. Even today, forest plots of 20 hectares and larger make up 30 percent of all timberland sales every month.
One of the most popular leisure activities in Lithuania is hunting, and the country is home to more than 31,000 registered hunters, 85 percent of whom belong to hunting clubs and organizations. Currently, no limitations on hunting in private forests exist, but the upcoming draft of the Lithuanian Hunting Act grants forest owners the right to prohibit public hunting on their land. This regulation follows the positive example set by Estonia and Sweden, which allows forest owners the right to collect a land-use fee or “lease” from hunting clubs; these fees allow for stronger preservation of private forests, as well as provide forest owners with additional income.
An added benefit of acquiring forest land in Lithuania is the European Union (EU) support and assistance that will be provided through 2020 for a wide range of purposes including afforestation, forest thinning, new forestry equipment, reconstruction of forest roads and much more. These measures are designed to ease the management costs and reduce the financial burden of forest ownership and investment, especially following a natural disaster that negatively impacts the forest and any related forest investment. Currently, many investors are using this support mechanism to help regenerate newly- acquired forest land plots.
Considering its mature and stable forest products industry, high-quality forest land with high growth volumes, competitive timber prices and incredibly low forest land prices, Lithuanian forest land offers a great opportunity for profitable growth. Prices are forecasted to grow steadily over the next five years, as will demand for forest land. However, savvy land investors know how to spot a winning opportunity and they know that the opportunity likely won’t last. New investors in Lithuanian forest land are poised to reap larger returns if they act quickly.