An Economic Analysis to Aid the Marginal Decision on Rotation Length: I. Presentation of the Principle

This economic analysis of the rotation problem is based on theactual decision which the forest manager must make for everystand, i.e. whether to fell now or in five years or so. Thismarginal decision becomes important, and need only be carefullyconsidered, when the stand nears financial maturity. The marginalapproach is perhaps the most realistic approach to the problemof financial rotations. The financial decision is based uponthe recognized criterion of maximum net discounted revenue (N.D.R.)per unit total invested capital. Certain theories of productioneconomics are combined with the practical methods of forestvaluation. These principles are used to present the economicanalysis as a graphical choice of the rotation at which thecombined yield of pulpwood and sawtimber maximizes N.D.R. Finally,current product prices are introduced and the optimum rotationis found. These current prices may genuinely be assumed to beconstant for any particular five-year period. A subsequent paperwill develop the basic principle into a multi-product technique.The principle is presented essentially as a fundamental techniquefor the projects of forest economics: its application and useare considered here in general terms, and for a specific Sitkaspruce (Picea sitchensis) stand type. An instrument for therapid determination of financial rotation and N.D.R. has beendeveloped from this principle of rotation determination.     

The consequences for the forest sector of nuclear power discontinuation in Sweden

Electricity prices in Sweden will most probably double, or more, during the next 10 to 15 years as a result of the decision to discontinue nuclear power production. This will substantially change the comparative advantage of all forest‐based product industries, some to the worse, some to the better. Roundwood prices and fellings will be affected and possibly the competitive position of wood‐based energy production. This paper estimates various types of effects with a long run pulpwood market model. The effects on electricity intensive production (CTMP, newsprint, etc.) may be drastic. However, the fall in total industrial consumption and price of pulpwood will be limited. The reduction in price is not sufficient to make pulpwood economically attractive as fuel. Own‐price elasticities of electricity demand are greater than reported elsewhere.     

Product diversification in South Africa’s commercial timber plantations: a way to mitigate investment risk

We used the portfolio method to examine how a forest company can lower investment risk by producing a mix of timber products. We derived optimum combinations of pine (Pinus patula) saw timber production and eucalypt (Eucalyptus grandis) pulpwood production at landscape level. Our results indicate that producing a product mix rather than a single product improves aggregated financial returns and lowers investment risk over multiple rotation periods. The optimum mixture depended on past timber price correlations for pulpwood and sawn timber in South Africa between 1980 and 2011. This ideal mixture is comprised of areal ratios of about 45% saw timber and 55% pulpwood. Our example shows how economic risk of a forest investment can be reduced by creating a portfolio of a number of products. The risk that an investor has to accept for each monetary unit that is expected in return can be reduced by over 40% when comparing the risk–return combinations of a pure pine saw-timber stand with that of a portfolio of forest products. The risk associated with the production can be reduced by 20% when growing a portfolio of products rather than eucalypt pulpwood only.     

The global timber market: implications of changes in economic growth,timber supply,and technological trends

A partial equilibrium model was applied to the global forest sector in order to assess regional and global impacts of changes in economic growth, timber supply potentials, and technical trends. The model uses recursive price-endogenous linear programming and deals with eight geographical regions and 16 products. The base line projections of the model gave an average annual increase in global supply of industrial roundwood of 1.2% until the year 2010. The real price of sawlogs and sawnwood was found to remain approximately constant, whereas the prices of pulpwood and particles increased significantly during the first years, and then declined after the year 2000. The real prices of pulp and paper increased less than those of pulpwood and particles. The assumed variations in GDP growth rates had limited influence on quantities supplied and traded due to restricted timber supply potentials, but affected the real prices, especially of pulpwood and particles. Changes in the assumed timber supply potentials and technical change affected the real prices of pulpwood and particles significantly. Introduction of a price responsive timber supply also dampened the price peaks of pulpwood. Possible improvements of the methodology include empirical estimation of timber supply and of key parameters that determine capacity expansion, trade inertia, and technical changes.     

Determinants of Swedish pulpwood imports

Pulpwood is imported to Sweden as a result of price discrimination and the monopsonistic features of the domestic pulpwood market. To investigate the determinants of Swedish pulpwood imports, econometric models were developed for the three imported assortments: pine, spruce, and non‐coniferous pulpwood. All prices used in the models were relative to the price of pulpwood imports. The study shows that the relative price of pulpwood (e.g. price of standing timber for sale/price of pulpwood imports) is not a significant determinant of pulpwood imports; it has the wrong sign for spruce pulpwood. This unexpected finding may have been a result of the impossibility of categorizing the price for standing timber according to pulpwood assortments. The relative export price of pulp, however, was found to be a significant determinant of spruce pulpwood imports, although not of pine and non‐coniferous pulpwood. An important determinant is the relative prices of inputs other than pulpwood in pulp production. The study also shows that pulpwood imports respond to price signals with a 1 yr lag, indicating inertia in trade.     

Bioenergy from the forest sector: Economic potential and interactions with timber and forest products markets in Norway

Abstract

A partial equilibrium forest sector model which is augmented to include bioenergy was applied to project the use of bioenergy based on forest fuels and forest industry by-products in Norway for three different scenarios of the future prices of electricity and oil. The impacts on forestry and forest industries of the different energy price scenarios were also studied. The advantage of the suggested methodology is that it allows for assessments of the economic potential of bioenergy, taking into account the competition for raw materials, the specific heat demand of various regions, and interregional and international trade. Bioenergy will, according to this study, be fairly competitive in some market segments with the current price levels of electricity and oil, and only a minor increase (decrease) in energy (roundwood) prices would release substantially increased bioenergy production levels. Pulpwood prices of pine and non-coniferous species are projected to increase substantially when assuming increasing energy prices. Except for particleboard mills, production levels of forest industries appeared relatively insensitive to the energy price changes.     

Process-based analysis of added value in forest product industries

Manufacturing products with greater added value is increasingly viewed as a strategic goal of forest products industries. Added value is defined here as the difference in economic value between the physical inputs and outputs of a production process, and is generally analysed at the firm or national economy level. In this study we identify and discuss issues involved in quantifying added value at the industrial process level, and develop a bottom-up method to estimate the value added by forest industry processes. We calculate the value added by 14 traditional and emerging processes within the Swedish forest products industries, and express the results using various indices. We find that the type of biomass input strongly influences the potential for adding value, with sawlogs allowing more added value and being less sensitive to input price fluctuations than pulpwood and forest residues. Structural wood products such as lumber and glue-laminated beams are found to give the greatest value added. Co-production of multiple products from a single raw material increases total value added. Integrating the value chain of pulp and paper production significantly increases the value added to pulpwood. Multiple conversion processes exist for using forest residues as fuel, with a range of potential added value. Consideration of the climate benefits of forest product use, through the application of a carbon tax, significantly increases the added value.     

Price integration for domestic and imported sawlogs and pulpwood in Finland: an update

This paper provides an analysis on the integration of prices for imported coniferous pulpwood and sawlogs, and respective domestic stumpage prices in the Finnish wood market. Eight real price series were investigated during 2002–2014 using monthly observations. The bounds testing approach by Pesaran et al. [(2001) Bounds testing approaches to the analysis of level relationships. J Appl Econom. 16: 289–326. doi:10.1002/jae.616], indicates there are long-run relationships between prices of domestic and imported wood. For more detailed information, the vector error correction model (VECM) approach was used. Estimation of a system with all eight prices with interpretable results did not succeed; therefore, we estimated models for prices of sawlogs and for pulpwood separately. For sawlogs, two co-integrating vectors, one for pine and one for spruce, were found. For pulpwood prices, one co-integrating vector was identified. The estimated VECMs confirm the results of bounds testing approach, suggesting that causation in the Finnish wood market runs from domestic prices to prices of imported wood. We conclude that prices of domestic and imported coniferous logs and pulpwood are closely connected. The question of full integration remains open, as border prices and stumpage prices by definition differ, at least, by logging and transportation costs.     

Increasing rotation periods during a time of decreasing profitability of forestry — a paradox?

The profitability of forestry in Germany decreased during recent decades because of more or less constant prices for forest products, increasing input prices and limited success in rationalisation. However, the volume of growing stock increased significantly during this period since forest enterprises have chosen longer rotation periods. This is especially true for state owned and community owned forests but also at least partly for private forests. It is normally not an alternative for the owners of forest enterprises in Germany to sell the forests completely, but on a first glance increasing investments in standing timber during a time of decreasing profitability of forestry seems to be inconsistent with economic theory. On the one hand this observation could be explained as the result of non-timber values. However, this paper is focused on another approach, which is an expanded Faustmann model in line with soil rent theory and focused on timber production. Profitable rotations in the future have the effect of shortening the optimal rotation period because an investment in standing timber causes opportunity costs by delaying the establishment of the next generation of the forest. Unprofitable future rotations have the opposite effect, if the landowner is forced to reforest. In case investments in reforestations are not profitable decision-makers have good reasons not to cut the mature stands, in spite of the fact that the internal rates of return of investments in standing timber are low in comparison with investments on the financial market. Empirical data for the period 1954–1998 mostly from guidelines for forest valuation are used together with inflation corrected interest rates to show that optimal rotation length increased over time. Nevertheless we have to recognise that the observed rotation periods are distinctly longer than the calculated optimal rotation lengths. Other factors which may also explain the investments in forestry are discussed later.     

A simulation model for evaluating technical and economic aspects of an industrial eucalyptus-based agroforestry system in Minas Gerais, Brazil

This study analyses the economic aspects of a eucalypt-based agroforestry system established in the savanna region of Brazil. In 1993,eucalypt clones were planted at a spacing of 10 × 4 m, to facilitate their future association with crops and pasture grasses. The results show that the establishment and maintenance costs represent 37% of the total costs associated with the system. More than half of the revenues are from the sale of the wood products obtained in the 11-year rotation. Variations of ±20% of the sale price of the cattle significantly affected the sensitivity analysis, closely followed by the variations of the price of wood for lumber and energy. Variations of ±20% of the establishment costs of the forest component significantly affected the economic indicators. The viability of the system is also sensitive to a slight change in interest rate. Finally, the agroforestry system adopted by the company is economically more attractive than eucalypt monoculture.This revised version was published online in November 2005 with corrections to the Cover Date.     

Short Rotation Coppice Energy Plantations

Short rotation forestry has been investigated since the 1960's. The development of programmes for reseirch in different countries is outlined, analysing the reasons for implementing certain strategies. The driving forces behind the renewed interest in short rotation plantations are assessed. Information has been eathered from short rotation forestry trials in the UK managed by thewwood Supply Research Group, aid similar work overseas, on productivity, biology, costs and logistics of various establishment, management and harvesting systems. In this paper, production strategies are outlined, focusing on recent advances. Models have been developed on a spreadsheet to analyse the economics of production. A sensitivity analysis of the economics involving several variable parameters and different costing methods is presented. The impact of technological developments on delivered wood fuel supply is highlighted. A decision support system which is under development is also outlined.     

Possibilities for shadow pricing forestry investments

A comparison is established between the concept of shadow price in linear programming and welfare economics. The shadow price should be used to appraise public forestry investments. In some circumstances, private forestry projects may have to be appraised from society's standpoint requiring shadow pricing also. But if the same forestry projects are looked at by a private individual or a firm, the appraisals will use market prices instead. This last analysis is termed financial analysis and differs from the economic analysis which uses shadow prices and appraises the project from a societal point of view. An example of shadow pricing a forestry project is derived from a cost sharing program evaluation presently investigated in Massachusetts.     

Spacing in Plantations: A Management Investigation

This paper describes an approach to management decision problemsusing incomplete information. The approach is demonstrated takingthe decision about the spacing to adopt in establishing a plantationas an example. Little critical information about the physicaleffects or the effects on costs of varying initial spacing isavailable in this country. It is shown that limits within whichsuch effects probably lie, can be determined for the main quantities—thevolume of timber produced, its quality, and the cost of production.If the objectives are known it is then possible to determinethe treatment likely to give the best result. In the case of spacing it is found that the spacing giving thebest financial results depends on the precise objective of theenterprise—expressed in this case by the discount rate,and on the prices to be obtained for the resulting produce,as well as on the volume and quality of the out-turn. It isshown that on a range of assumptions about physical outcomeand price ranging from the most optimistic to the most pessimistic,and with rates of discount ranging from 31/2 to 61/2 per cent.on all except extreme combinations, a spacing of 8 feet willlead to a financial result within 5 per cent. of the best. Onthe expectations considered most likely to come about, spacingof 8 feet gives the best financial result. Only on the mostpessimistic assumptions of price and volume production is theadditional expenditure necessary to achieve spacings closerthan 8 feet expected to earn a rate of return greater than 5per cent.     

Optimal management of uneven-aged Norway spruce stands

An optimization model is specified to analyze forest management without any restrictions on the forest management system. The data on forest growth comes from unique field experiments and is used to estimate a nonlinear transition matrix or size-structured model for Norway spruce. The objective function includes detailed harvesting cost specifications and the optimization problem is solved in its most general dynamic form. In optimal uneven-aged management, stand density is shown to be dominated by limitations in natural regeneration. If the goal is volume maximization, even-aged management with artificial regeneration (and thinnings from above) is superior to uneven-aged management. After including regeneration and harvesting costs, the interest rate, and the price differential between saw timber and pulpwood, uneven-aged management becomes superior to even-aged management. However, in the short term the superiority is conditional on the initial stand state.     

Estimation of the Gentan probability using the price of logs in private plantation forests

The Gentan probability is defined as the probability that a newly planted forest stand will be harvested at a certain age. In this study, the Gentan probability was estimated using the price of logs, in accordance with the notion that the probability is influenced by economic factors. In order to estimate the Gentan probability, we adopted a probability density function based on the forest owners’ decision-making process, which consisted of a decision criterion, a decision criterion function and a criterion threshold. The price of logs was employed for the criterion, and the decision criterion function was defined as the value of the forest stand based on the price of logs. Moreover, the mechanism of changes in the threshold was formulated based on the random walk concept. The parameters of the suggested Gentan probability were calibrated to fit the harvesting tendencies observed in the past. Finally, the Gentan probability distributions estimated using the prices of logs over the past 20 years were compared with those estimated using felling age means and variances. The two distributions were closely correlated during most years. The proposed Gentan probability model takes advantage of short-term yield predictions such as an analysis of forest owners’ reactions to the current price changes.     

The economic viability and potential of a novel poultry agroforestry system

Investigating agroforestry systems that incorporate poultry is warranted in Northern Europe as they may offer benefits including: improved welfare and use of range; reduced feed costs; price premia on products; reduced payback periods for forests; and, greater returns on investment. Free-range egg production accounts for 27% of the United Kingdom egg market and demand for outdoor broilers is increasing. No research has been conducted recently on the economic viability of agroforestry systems with poultry. An economic model was constructed to: assess economic viability of a broiler agroforestry system; and, investigate the sensitivity of economic performance to key factors and interactions, and identify those which warrant attention in research and management. The system modelled is a commercial trial established in Southern England in 2002 where deciduous trees were planted and broilers reared in six- or nine-week periods. The model uses Monte Carlo simulation and financial performance analyses run for a 120-year period. An Internal Rate of Return (IRR) of 15.5% is predicted for the six-week system which remains viable under a ‘worst case’ scenario (IRR of 12.6%). Factors which affect financial performance most (decreasing in magnitude) are prices achieved for broilers, costs of brooding houses, chicks, arks, feed and timber prices. The main anticipated effects of biological interactions on financial performance (increased ranging on feed conversion and excess nutrient supply on tree health) were not supported by analysis. Further research is particularly warranted on the welfare benefits offered by the tree component and its relation to price premia.     

Financial performance of mixed-age naturally regenerated loblolly-hardwood stands in the south central United States

To estimate the financial performance of a natural mixed species and mixed-age management in the loblolly-pine forest type, we examined 991 FIA plots in the south central states. The plots were of the loblolly pine forest type, mixed-age, and had been regenerated naturally. We gauged the financial performance of each plot from the equivalent annual income (EAI) produced by growth and harvest, between two successive inventories. The real price EAI (REAI) measured the financial performance based on the real price change, net of inflation, between surveys. The constant price EAI (CEAI) measured stand productivity at prices at the time of the first survey. Thus, the REAI is a measure of real economic performance, including timber growth and price changes. In contrast, the CEAI is a quantity index of timber growth, the growth of each product being weighted by its price. During the period 1977–1994, the main determinant of the REAI was the price change. Due to an overall favorable price trend, the mean REAI ($158 ha⁻¹ year⁻¹) was much greater than the mean CEAI ($24 ha⁻¹ year⁻¹). Due to increasing prices, the best performing plots had very high stocking levels. Thus, the best financial strategy was to hold the stock, making the opportunity cost of conservation negative. Instead, CEAI tended to be lower on stands with high basal area, and higher in stands with many trees, a low share of hardwoods, and many trees near sawtimber size.     

林纸结合发展途径的探讨

本文结合国内外实践,论述了林纸结合的必要性,探讨了林纸结合的主要形式,并从造纸木材原料需求出发,论述了建设速生丰产造纸林基地,最佳综合利用林业资源及投资方案经济技术分析等林业发展技术对策。     

Stochastic simulation of forest fuel sourcing models under risk

Abstract

Climate change effects such as storms and droughts are leading to increased risk of forest damage in central Europe. The aim of this paper was to evaluate forest fuel sourcing models including climate change-induced risks on forest fuel supply. Stochastic risk events, such as storms and bark beetle infestations, were modelled by means of a Monte Carlo simulation, and the economic performance was evaluated for two fuel-sourcing models supplying a single combined heat and power plant (CHP). The first sourcing model depicted a common sourcing model for Austrian CHPs, where only forest chips provided by long- and short-term suppliers were stored. The second sourcing model additionally enabled the storage of salvaged pulpwood to supply forest fuel from the plant's own inventory during shortage periods. Simulation results showed that storing salvage pulpwood as feedstock considerably reduced supply chain risks and resulted in lower procurement costs (1–3% less than normal delivered cost without storing salvaged pulpwood).     

The Effect of Two Different Price Systems on the Value and Cross-cutting Patterns of Norway Spruce Logs

A computer program of a forward reaching algorithm of dynamic programming is presented for optimal log bucking. The application is implemented using an object-oriented programming approach. Sensitivity analyses were applied for evaluating the effects in terms of economic value and usable volume, and of altering the price system for saw wood. The data used consisted of 451 Norway spruce (Picea abies (L.) Karst.) stems collected from 13 forest sites located in three regions in Norway. Grade I and Grade II saw wood and pulpwood were used. The mean timber value increased approximately 1% when the new price system was introduced. The value obtained by introducing the new prices varied between the sites (0.1%-1.6%) as well as between regions (0.3%-1.6%). The analyses based on taper equations over-estimated the total value for all the alternatives. Finally, decreasing the width of stem sections and increasing the number of log length alternatives increased the total value of the sample trees but increased the computation time.