Technical efficiency in timber production and effects of other income sources

In Norway, as in many other European countries, income from forestry has become marginal to owners’ household economies and most employment of forest-owner households is now undertaken off the property. Also, many forest owners have focused increasingly on other revenue-earning activities on their properties, such as providing recreational services. It is a challenge in all kinds of production to find the optimal way of converting inputs into outputs, i.e., to be technically efficient. Extent of financial dependency on income from forestry differs between part-time and full-time forest owners. Since the two groups have different livelihood strategies, it is plausible that full-time forest owners have more professional forest management practices. Data for a cross-section of 3,249 active (i.e., harvesting) forest owners were extracted from the 2004 Sample Survey of Agriculture and Forestry representing the year 2003. A stochastic production frontier analysis was applied to evaluate forest management efficiency impacts of important factors including property and owner characteristics, outfield-related and agricultural activities, off-property income and geographical location in central or remote areas. It was found that many forest owners are technically inefficient, and there exist opportunities for improved performance. Off-property income was found to have an estimated negative impact on technical efficiency, the inefficiency arising (weakly) with increasing share of household incomes from outfield activities, and properties in urban centred areas are less efficient than those in remote areas. One policy implication of the study is that a potentially substantial efficiency increase might be achieved from allowing small inefficient woodlots to merge into larger units of forestry production. Also, providing support for forest management plans may improve efficiency.