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.     

An Economic Analysis to Aid the Marginal Decision on Rotation Length: II Development of the Technique

The economic principle, which was presented in an earlier paper(Forestry, 37, 161), is developed into a flexible techniqueof economic analysis for use in forest management. The techniqueprovides a rapid method for analysis of the marginal decisionon financial rotation length; whether to fell now, or in fiveyears or so. The developments include incorporation of a price-sizegradient, different product prices, various costs of operation,reductions in volume yield, and various establishment and maintenancecosts. Now in its final form, it can incorporate these changesin stand conditions without any laborious calculation. The techniqueis used to analyse the effect of financial factors on the marginaldecision, i.e. prices, costs, and productivity. It is suggestedthat financial rotations are fundamentally dependent on therelation between physical production and the interest rate.Second, establishment and annual maintenance costs have no effecton the decision. Third, prices, or more specifically the ratioof pulpwood price:sawtimber price, are not of major importance,because they influence the decision within the limits alreadyimposed by production and interest rates. The justificationfor pulpwood rotations is also examined. This paper has developeda basic technique for projects of forest economics. It is partof the research work into the economics of timber production,which is being undertaken by the author at the Forestry Department,University College of North Wales, Bangor.