Economic value of Forestland

• Market values – Direct

The values of forest resources that are traded in the market. Associated with resources such as wood products, non wood forest products (mushrooms, herbs, etc.), minerals, fisheries, forage for livestock, drinking water, water used for hydroelectric production, outfitter services, etc. . Also land (property) values

• Market values – IndirectThe economic values associated indirectly or tangentially with bringing a forest resource to market. Sometimes includes transportation, lodging, food, and materials needed to harvest or produce an

extractive commodity. Also the indirect economic value of businesses and services associated with the outdoor recreation industry.

Economic value of Forestlands (Continued)

• Non-market valuesThe economic value of environmental amenities and services, such as scenery, the atmosphere, waterways, clean air, clean water, pollination, etc.. Also includes

– Use valueIncludes recreation; benefits derived from direct contact with the resource

– Consumptive valueIncludes hunting, fishing, collecting, etc.

– Option valueValue associated with the knowledge that the potential for future use exists

– Existence valueValue to people who benefit from the knowledge that an ecosystem continues to exist

How can we assess the economic value of

non-market environmental services? 1. Stated (direct) preference approaches:These are methods that allow people to state a value that directly relates to a specific

environmental change that would be incurred by a change in policy.

• Contingent Valuation Method (CVM)– Relies on surveys

– Willingness to pay for a service with a hypothetical assumption of a plausible market

– This is the only method allowed by the U.S. government for assessment of existence value.

• Choice experiments– Based on conjoint analysis, which is used in marketing to determine the attributes of a product

likely to result in the greatest market share

– Uses surveys to rank alternative options in terms of combinations of goods and services

Criticism: How would people react in a real situation?

How can we assess the economic value of non-market environmental services?

2. Revealed preference approaches:

These methods are based on observing how people behave in markets that are indirectly related to the ecosystem good or service that is to be valued.

• Travel cost methods– A method for determining the economic value of recreational use– Based on cost of travel time and distance to a potential recreation site

• Hedonic pricing– Used to value environmental amenities (or disamenities such as pollution) in the

context of residential home markets– Evaluates the combination of environmental amenities and disamenities to explain

wage differentials and home purchase price

Decision Analysis

Common techniques include:

1. Benefit-cost analysis which compares the benefits and costs of alternative with the ratio or net benefit selected

2. Marginal analysis is a variant of BC analysis in that you’re analyzing the change in benefits and the change in costs as you go from one alternative to another

3. Optimization addresses problems where that are a seemingly infinite number of alternatives when you combine stand conditions, each with numerous alternatives, that could be selected over a variety of planning horizons; essentially involves the allocation of scarce resources among alternative uses to fit a single goal

i. Linear programming

ii. Quadratic programming

iii. Goal Programming

iv. Nearly all management texts written in the 1990’s devoted a substantial portion of the text to these techniques

Valuation of the Tree

I. Whole tree methods

II. Log based methods

1. Determine lumber value per MBF by grade and diameter

Lumber prices, lumber grade recovery, etc.

2. Determine log value per MBF by diameter, grade, and log length delivered to the mill.

Cost analysis of milling, conversion from mill to log scale.

3. Determine stumpage value of logs in standing trees

Include cost analysis of logging

4. Apply stumpage value by log grade to standing trees.

a. Variable cost (direct costs)

b. Fixed cost (indirect costs)

c. Conversion surplus at a processing stage

d. Conversion return at a processing stage

1. Standing log value

2. Felling and limbing

3. Yarding and bucking

4. Roadside log value

5. Hauling

6. Delivered log value (log scale)

7. Realized log value at the mill (lumber scale)

Value development in a log

• Forest Inventory

• Harvest Schedule

• Market information

• Non-timber assets This is increasingly important and difficult

• Financial information

-annual management

-Legal expenses

- property taxes

- planning, capital improvements, boundary maintenance, etc.

Valuation of Timberland

Scheduling and Rotations

1. Classical forest regulation

A. Area control

Regulated forest can be achieved in one rotation, but harvests often become unstable in the near future

B. Volume control

Stable harvest can be achieved in near future, but fully regulated forest not achieved in one rotation

Volume control

1. Austrian formula

Annual cut = I + (Ga –Gr) / a

Where I = annual increment

Ga = present growing stock

Gr = desired growing stock

a = adjustment period (may be one full rotation)

I may be adjusted so that I = (Ip+Ie) /2

Volume control

2. Hanzlik’s formula

Annual cut = (Vm / R) + I

Where Vm = volume of merchantable timber above rotation age

R = rotation adopted for future stand in years

I = forest increment

Scheduling and Rotations (continued)2. Application with different rotation lengths

A. Forest divided into compartments based on

- site index

- forest types

- silvicultural regime

- management objectives

- non-timber products

- wildlife

- recreation

- environmental objective, etc.

B. Can incorporate extended rotations

C. Can incorporate reserves

“Base Harvest Policy” (USFS):

1. Harvest schedule does not result in declining yield – must exhibit non-declining yield (NDY)

2. Regeneration harvests at or beyond CMAI

3. Planning horizon equal to 2 x max. CMAI or more

Harvest Scheduling Continued

http://www.for.gov.bc.ca/hre/areaaac/index.htm

Canadian “Area-based Allowable Annual Cut Analysis Project:”

a. relative oldest first;

b. absolute youngest first; and

c. random stand selection.

Three Choices for Area-Based Allocable Cut

Lowering the maximum constant area harvest rate may increase volume production in some, but not all, cases.

Decision Analysis

Common techniques include:

1. Benefit-cost analysis which compares the benefits and costs of alternative with the ratio or net benefit selected

2. Marginal analysis is a variant of BC analysis in that you’re analyzing the change in benefits and the change in costs as you go from one alternative to another

3. Optimization addresses problems where that are a seemingly infinite number of alternatives when you combine stand conditions, each with numerous alternatives, that could be selected over a variety of planning horizons; essentially involves the allocation of scarce resources among alternative uses to fit a single goal

i. Linear programming

ii. Quadratic programming

iii. Goal Programming

iv. Nearly all management texts written in the 1990’s devoted a substantial portion of the text to these techniques

ASSISI Forest management software

ASSISI Forest management software