the economic analysis of industrial plantations in turkey

The Economic Analysis of Industrial Plantations in Turkey

Tuğba DENİZ

Istanbul University, Faculty of Forestry

Department of Forest Economics

Outline

Introduction

Findings

Economic Aspects of Public Industrial Plantation Projects

Private Sector Industrial Plantation Projects

Academic Research Projects

Conclusions

3rd International Congress on Planted Forest, 15-18th May 2013, Porto 2

Introduction

Wood raw material demand is increasing.

Supply deficit in market.

The annual average of supply deficit is 1.3 million cubic meters.

Although Industrial Plantations are needed for reducing supply deficit, the number of Industrial Plantation Projects (IPP) are limited.

3rd International Congress on Planted Forest, 15-18th May 2013, Porto

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The Economic Structure of IPP in Turkey

Plantation investments are planned technical, biological and economically.

Some technical, biological, and economic elements that affect annual benefit and cost data.

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Technical, biological, and economic elements

Tree species

Site index

Slope groups

Thinning

Pruning

Rotation period

Production technique (Labor or mechanization)

Product sale prices

Distance to markets

5


Stages in planning a plantation project

Inventory and pre-etude

Feasibility report

Application project

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The Stages

The stage of inventory and pre-etude, field works

are made.

In feasibility stage, the most profitable one

among the project alternatives is selected.

At the final stage, the alternative which chosen is

put into practice as an application project.

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Criteria

Internal Rate of Return (IRR)

Benefit-Cost Ratio (BCR)

Net Present Value (NPV)

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IRR

IRR reflects profitability of investment.

Since IRR is a ratio criterion; it is not affected by the size of project.

IRR is suitable for ranking.

A decision is made by ranking according to profitability of projects at the end of economic analysis.

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Findings

Public Industrial Plantation Projects

Private Sector Industrial Plantation

Projects

Academic research projects

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Public IPP

Industrial Forestry Plantations: Turkey Project

(FO: DP/TUR/71/521) was supported by FAO.

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Table 1: The Profitability of industrial plantation with Pinus pinaster in Marmara Region *.

Site

Profitability

NPV

(at 8% discounted rate)

(TL/ha)

IRR

(percent)

Good 61 446 12.9

Average -872 7.85

* COOLING (1977) Industrial Forestry Plantations: Turkey, Final Report, United Nations Development Programme, Food and Agriculture Organization of The United Nations, FO:DP/TUR/71/521 Working Documents, Rome, Italy.

The expected revenues of the project were calculated.

The net revenues were obtained by deducting the harvesting and transporting costs from the gross revenues.


Another industrial plantation project is Durusu Basin Plantation Project in Marmara Region.

In scope of the project, industrial plantations were established for several purposes such as wood supply, erosion control and range improvement.

Cost accounts and revenue accounts were calculated in the section of project economy of pre-feasibility report of the project.

At the same time, some important macro-economic criteria (added value, the effect of employment, foreign exchange retention) were accounted.

The probable non-market benefits (erosion control, tourism, etc.) which created by the project were mentioned but their values were not determined.

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Private sector IPP

A pre-feasibility report was prepared by BİRLER

(1996) on fast growing forest plantation investments.

The purpose of the report prepared in a public institution is to help in making decision for investors who want to invest in Turkey.

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Slopes Economic parameters

Regions and Tree Species

Eastern Black

Sea Region

Pinus radiata

(Radiata pine)

Western Black

Sea and

Marmara

Regions

Pinus pinaster

(Maritime pine)

Aegean and

Mediterranean

Regions

Pinus brutia

(Red pine)

0-30 %

Annual Net Revenue (US$/ha/year) 1 543.08 984.48 893.21

NPV (US$/ha) 11 392.22 6 638.71 5 499.33

BCR (ratio) 4.82 2.96 2.66

IRR (%) 19.08 13.98 12.07

Wood production costs (US$/m3) 17.94 22.74 30.63

31-60 %

Annual Net Revenue (US$/ha/year) 1 319.23 801.89 676.89

NPV (US$/ha) 9 138.35 4 769.98 3 459.98

BCR (ratio) 3.18 1.74 1.34

IRR (%) 14.93 10.90 9.22

Wood production costs (US$/m3) 24.87 33.05 48.61

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Table 2: The economic parameters of industrial plantation investments made with various tree species in different regions*

*Adapted from Birler (1996), A Pre-Feasibility Study for Fast Growing Forest Plantation Investments in Turkey, Istanbul.

The economical evaluation results in Table 2 indicated that Radiata pine (Pinus radiata) plantations were more profitable than others in the 0-30% and 31-60% slope conditions in the context of the criteria of NPV, IRR and BCR.

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Private Sector IPP

The second example is “The Project of Establishment and Development of Industrial Plantations” (2005) was conducted by Industrial Tree Farming Industry and Incorporated Company.

The data on economy of the project could not be obtained due to the privacy policy of the company.


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Academic Research Projects

Although the economic analysis in afforestation projects of state organizations has not place clearly and private projects on industrial afforestation are not enough, some researches in academic level were realized on it.

Economic analysis of some projects by DASDEMİR and SAHİN (2006), DURKAYA (2001), TUNÇTANER et.al (2012).

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Tree Species Site

Index

Rot.

(year)

Production

Technique

Optimal Situation Actual Situation

NPV ( TL/ha) IRR

(%)

BCR NPV (TL/ha) IRR

(%)

BCR

Red

Pin

e Good

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Labor 3.798.752.761 8.55 3.41 1.823.402.325 4,10 1,64

Mechanization 3.887.685.711 8,82 3,61 1.866.089.141 4,23 1,73

Poor 33 Labor 630.625.424 4,28 1,40 302.700.199 2,05 0,67

Mechanization 719.558.364 4,52 1,48 345.388.015 2,16 0,71

Bla

ck P

ine Good 70

Labor 1.178.523.970 4,17 1,70 683.543.903 2,42 0.94

Mechanization 1.267.456.920 4,32 1,79 735.125.014 2,51 0,98

Poor 70 Labor -50.493.874 2,95 0,97 -29.286.447 1,71 0,53

Mechanization 384.390.476 3,07 1,02 222.946.476 1,78 0,56

Ma

riti

me

Pin

e

Good 25 Labor 10.295.444.146 12,78 7,53 8.339.309.758 10,35 6,10

Mechanization 10.384.377.096 13,09 7,97 8.203.657.906 10,34 6,30

Poor 35 Labor 1.496.528.505 5,22 1,95 1.21.188.089 4,23 1,58

Mechanization 1.586.461.455 5,43 2,06 1.252.514.549 4,29 1,63

Bee

ch Good

100 Labor -766.921.933 2.83 0.80 -766.921.933 2,83 0,80

Mechanization -677.988.983 2,85 0,82 -677988.983 2,85 0,82

Poor 120 Labor -3.053.973.439 1,76 0,22 -3.053.973.439 1,76 0,22

Mechanization -2.965.040.489 1,78 0,23 -2.965.040.489 1,78 0,23

Table 3: The values of NPV, IRR and BCR of plantations alternatives*

* Adapted from Daşdemir and Şahin (2006) “The Economic Analysis of Industrial Plantations Investments: Bartın Example”.

As you see from Table 3, when an investor use maritime pine in a good site and apply 25 years as rotation age, investor can reach the IRR bigger than 10%.

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22

Slo

pe

Gro

up

s

Maritime Pine I.Site

Index

Maritime Pine

II. Site Index

Radiata Pine

I.Site Index

Radiata Pine

II. Site Index

Red Pine

I.site Index

Red Pine

II.Site Index

Rot.

(year)

IRR

(%)

Rot.

(year)

IRR

(%)

Rot.

(year)

IRR

(%)

Rot.

(year)

IRR

(%)

Rot.

(year)

IRR

(%)

Rot.

(year)

IRR

(%)

1 11 18.72 21 9.81 22 11.65 30 8.55 - - - -

1 11 20.67 20 10.63 - - - - 22 9.44 29 5.91

1 12 16.99 23 9.05 23 10.88 31 8.03 - - - -

1 - - - - - - - - 23 8.26 31 5.12

1 11 20.81 20 10.69 21 12.50 29 912 22 9.49 29 5.94

2 13 14.99 24 8.08 25 9.91 32 7.30 - - - -

2 13 15.16 24 8.16 - - - - 24 7.21 33 4.35

2 13 14.52 25 7.88 25 9.71 32 7.15 - - - -

2 - - - - - - - 24 7.13 34 4.30

2 12 16.49 23 8.72 24 10.58 31 7.76 24 7.75 31 4.70

Table 4: The values of IRR of the industrial plantation project in Kerpe*.

*Adapted from Durkaya (2001), “Determination of Planning Principles and Suitable Sites for Industrial

Plantations”.

Results showed that when an investor use maritime pine in I.group slope and I.site index apply 11 years as rotation age, entrepreneur can reach the IRR bigger than 20%.


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Tree

species

Site

index

Rotation

(year)

Plantation

techniques

NPV

(US$/ha)

IRR

(%)

BCR

(ratio)

Pinus pinaster

(Maritime pine) Good 25

Mechanization 6.923 13.09 7.97

Labor 6.863 12.78 7.53

Bad 35

Mechanization 1.057 5.43 2.06

Labor 998 5.22 1.95

Fagus orientalis

(Oriental beech) Good 100

Mechanization -452 2.85 0.82

Labor -511 2.83 0.80

Bad 120

Mechanization -1.977 1.78 0.23

Labor -2.036 1.76 0.22

Table 5: NPV, IRR and BCR values for various variables (TUNÇTANER et.al, 2012).

The economic analysis results indicated that maritime pine plantations were more profitable than oriental beech in the conditions of good site index, 25 year rotation and mechanized in the context of the criteria of NPV, IRR and BCR.

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Conclusions

Results showed that maritime pine investments are the most profitable in Turkey conditions.

The profitability rates are higher than the current interest rates in market. So, this projects are feasible in current conditions.


Conclusions

Profitability analysis is only made Feasibility reports of industrial plantation investments in Turkey.

In application projects, only project costs are calculated. Hovewer, during implementation of projects, several revenues like weed sale, clear felling, thinning can be created. In addition to, there are some revenues created for environment. In order to evaluate in local and national scales, all revenues created during the project should be taken into account.

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Conclusions

Industrial plantation projects have many benefits such as better protection by reducing the pressure on natural forests; reduction in dependence on foreign markets by meeting the growing need for raw materials, prevention of erosion, carbon sequestration, employment creation, contribution for rural development. It is possible their values by estimating with using several methods may be added into project revenues.


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Thank You So Much

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