Landowners' expectations regarding fair compensation for economic activity restrictions in protected areas, or the alienation and exchange of such land, may run into issues regarding the sources of financing.
It should be recalled that forest owners have been talking about fair compensation for established bans and restrictions on economic activity for many years, but realistic changes have not been achieved to date. A glimmer of hope was the 5 March decision by the Saeima Presidium to refer a draft law proposed by six Saeima deputies (A. Labucis, V. Maslovskis, M. Fels, I. Bērziņa, J. Patmalnieks and A. Šuvajevs) for consideration by the parliament’s Economic, Agricultural, Environmental and Regional Policy Committee (amendments to the Law on Compensation for Restrictions on Economic Activity in Protected Areas). This draft amendment was supported at the first reading in the Saeima plenary session on 4 June, but not everyone was satisfied with the version proposed, so proposals have been submitted for the second reading.
One instead of four
It should be noted that the Cabinet of Ministers already commissioned the development of compensation solutions under the leadership of the Ministry of Smart Administration and Regional Development in 2024. In 2025, the working group developed four compensation solutions for economic activity restrictions in protected areas, which is why landowners were very surprised to see only one of the four proposals in the draft law amendments being considered by the Saeima.
“The working group had provided for an annual payment, a one-off payment for the value of the forest stand once it had reached its felling age or diameter, as well as land buy-backs and land exchanges,” says Valdis Kalns, Executive Director of Real Estate at the state-owned forest management company Latvijas valsts meži, regarding the results of last year's work. He acknowledges that the state forest manager's representatives were also surprised that only one of the four solutions is being moved forward, and furthermore, that the entire administrative burden for its implementation is being entrusted to Latvijas valsts meži (LVM).
“A single type of compensation was proposed – land exchange, which in theory would currently have to compensate for just under 74,000 hectares of land. The main contradiction is that Latvijas valsts meži is a company that does not accept applications or issue administrative acts within the administrative process at all, including for land exchange. A public administration function can only be performed by a state institution, such as the Nature Conservation Agency. With one proposal, the institutional system in the country would be significantly disrupted,” explains V. Kalns, pointing out that this is precisely why consultations have been held with forest owner non-governmental organizations and the Ministry of Agriculture in order to prepare correct and realistically implementable proposals for compensation for economic activity restrictions.
LVM submitted its observations and estimates to the Saeima's responsible committee on the situation if the company has to remove ~74,000 hectares from economic circulation in the case of land exchange: the capital value of the forests managed by LVM would decrease by approximately 744 million euros, the annual volume of timber harvested from state forests would decrease by approximately 2 million m³, and the amount paid in dividends would shrink by approximately 60 million euros per year, which is about half of the company's legal obligation to pay at least 123 million euros in dividends in 2027 and 2028.
Four solutions
“The currently approved version of the law amendments provides for only one mechanism – land exchange, which is a relatively cumbersome solution, especially because not all private forest owners are ready for it,” explains Āris Jansons, Director of the Forest Department at the Ministry of Agriculture. He notes that this is precisely why the Minister of Agriculture, Uldis Augulis, has prepared a proposal that provides for several possible compensation options. Specifically, the landowner is offered an annual support payment, just as they are now, but according to Ā. Jansons, its set ceiling (currently between 52 and 196 euros per hectare), which is linked to total agricultural fund payments, should be raised to approximately 500 euros per hectare.
“A corresponding proposal regarding the amount of EU support payments for 2028-2034 has already been prepared,” emphasizes Ā. Jansons, noting that in cases where a forest stand has already reached its felling age or diameter and a ban on forest management activities, as well as a ban on final and thinning felling, has been set for the entire calendar year, a one-off payment is envisaged. The third type of compensation would be the buy-back of land on which a ban on economic activity has been set, and the fourth would be land exchange.
“The administratively cheapest and simplest solutions to implement are potentially the most attractive for the forest owner and the state as well, because no matter what the land exchange procedure is, it will still require a Cabinet of Ministers order; preparing such an order for every single land unit exchange will require a lot of time and resources,” explains V. Kalns. As a possible source of funding for payments for forest stands where economic activity is prohibited or restricted, the dividends of Latvijas valsts meži, which are paid into the state budget annually, are mentioned; the government, when preparing the annual budget, can provide funds for the buyout of land where economic activity is prohibited or significantly hindered, for making a one-off payment, and also for covering administrative costs in cases of land exchange.
The administrator question
“The Nature Conservation Agency already manages compensation issues related to protected areas; it has the appropriate competence, as well as information on protected areas and micro-reserves, their boundaries and protection regimes, so it would be logical to transfer the land buyout and exchange function to this competent state institution,” Ā. Jansons is convinced. He acknowledges that to implement land exchange, it would be necessary to create an Exchange Land Fund. It should also be taken into account that the proposed changes could only come into force in 2029.
Nuances that change the essence
V. Kalns draws attention to the fact that the draft law amendments proposed by the deputies provided that land exchange could be carried out and compensation requested only by those landowners whose properties have had instrumental land boundary surveying performed: “If the state maintains a system where indicated boundaries are legal and both farmers (and receive relevant payments) and foresters can manage them, demanding instrumental surveying would essentially mean financially burdening a landowner who has already been subjected to bans or restrictions on economic activity.” Valdis Kalns points out that another proposal from the Minister of Agriculture is to extend compensation to micro-reserves, which was not in the deputies' proposals. Forester Andis Malējs also emphasizes that compensation and all other support measures must apply to absolutely all, not just specifically protected areas, where restrictions or bans on economic activity have been set.
In Finland they queue, in Latvia they protest. Chairman of the Board of the Latvian Association of Agricultural Cooperatives Rolands Feldmanis
In March 2024, about a thousand forest owners protested outside the government building in Riga because the state pays them compensation for bans on economic activity that has not been revised (changed) since 2013. Meanwhile, in Finland, owners voluntarily apply for the METSO protection program, and the state achieves and exceeds its set goals. The difference lies in one word: economically adequate compensation.
This issue is highlighted by the summary of the environmental report of the “Guidelines for the Forest and Related Sectors 2026-2050” commissioned by the Ministry of Agriculture. The base scenario envisages orienting up to 30% of forests towards biodiversity goals, with up to 10% of them for strict protection. New restrictions in private forests should not be moved forward without a reasoned compensation mechanism, as this is precisely what increases the risk of legal and social conflict. The Finnish METSO program shows another possible path – voluntariness, where the state pays full compensation for the value of timber in the protected area, the payment is tax-exempt for permanent protection, and if the owner sells the land to the state, they also pay for the land. In 2025, 23 million euros were spent on permanent protection alone and another 12.3 million euros on fixed-term contracts; the target of 96,000 hectares was reached ahead of schedule, and from 2026, a new period begins, which will continue until 2040, with approximately 40 million euros per year.
In Finland, nature conservation is a sought-after product, not a threat to property. For comparison: in Latvia, the annual payment in Natura 2000 forests is 52-196 euros/ha depending on the restriction; forest owner organizations point out that this is often several times lower than the market value of the forest stand. Interestingly, neighbors also live by the same annual rent logic, just with different numbers. In Estonia, they pay 134 euros/ha per year in Natura 2000 forests in the strict protection zone and 60 euros/ha in the limited management zone, furthermore, forest income up to 5,000 euros per year, including these payments, is exempt from income tax. In Lithuania, 275 euros/ha per year is paid for prohibited final felling, which is almost twice as much as Latvia's 145 euros/ha for the same restriction.
The most important thing is this: in all three Baltic states, the state advantageously rents the owner's abandonment of logging, and only Finland pays once and at full value for what society takes. The financial calculation is implacable.
If a buyer values a fully encumbered hectare only according to the compensation flow and discounts it by 5%, which roughly corresponds to the Euribor and the bank's added rate, 196 euros per year capitalizes to a value of about 3,900 euros regardless of how much the hectare was originally bought for. If we take a stricter benchmark, namely that the alternative to money is an investment in the New York Stock Exchange, where the long-term average return of the stock market is about 10% per year, the same 196 euros only capitalize to about 1,960 euros/ha. The higher the alternative return, the less the encumbered hectare is worth; professional investors calculate with exactly this benchmark. The difference between the purchase price and this sum is a loss that arises on the day the ban comes into force, not in 2050. You cannot sell an encumbered asset at the purchase price, and the bank sees this as quickly as the owner.
Even more important is the time dimension. According to the environmental report's own data, the capital value of Latvian forests has grown from 13.2 billion euros in 2008 to 17 billion euros in 2023. This is capital that we can multiply through management or reap the fruits of – at least a billion euros a year. Western European funds with capital accumulated over generations can calmly wait until 2050, but a Latvian owner with a monthly loan payment cannot. If bans come without fair compensation, some owners will sell now and cheaper; the buyer will be someone who has accumulated capital and the time to wait. In this way, environmental policy without compensation turns into a capital redistribution mechanism where the restrictions remain on the Latvian side, but property rights flow to where capital has long since ceased to be a problem.
The conclusion is not aimed against nature conservation. Finland proves that nature and the owner are not opponents if they agree on a fair price. If the state wants to dedicate 30% of forests to nature goals, the first step must be an adequate compensation system with a market value principle and tax exemption based on the Finnish model, and only then should come the maps of bans. For their part, owners should remember that a unified position is very useful in politics. An organized industry, including forestry cooperation, is the only one that can sit at the table while the compensation methodology is still being developed, rather than when it has already been accepted.