Future rotations problem

ABSTRACT

Commercial forest owners and managers often complain that valuations of their forest estates have negative values for ‘Future Rotations’ and invariably cast the discount rate as the villain in causing these negative values. In this study, stochastic analyses of the valuation of a hypothetical estate of radiata pine (Pinus radiata D.Don) show that fire or similar natural disasters are one cause. Additional expenditure on fire suppression and protection and precision silviculture may be justified if the relative frequency of large fires can be lowered. Stochastic analyses of individual stands also show that replanting the stand of worst productivity contributed a deadweight loss to estate value. Replanting the stand of mid-level productivity would result in a 70% (approx.) probability of a loss, while replanting the stand of the best productivity would result in a very low probability of a loss. Planned replanting of stands of poor prospective profitability is, therefore, another cause of negative values of Future Rotations. Replanting is an investment decision. Stands that cannot be raised to a profitable level through precision silviculture should be sold, leased for other uses, or otherwise converted to alternative uses involving low net management costs. New technologies and designs need to be developed for precision silviculture to provide less expensive and more precise and timely methods for statistically discriminating between treatments. The Future Rotations problem is a management and research challenge, not an insuperable barrier.

KEYWORDS:

• Valuation
• deterministic models
• stochastic models
• future rotations
• investment
• replanting

Acknowledgements

This paper was presented at the 2015 ANZIF Conference on ‘Beyond Tenure’ held at Creswick, Victoria, 13–15 April 2015. Thanks are due to HVP Plantations Pty Ltd, Karl Kny, Cam MacDonald, Tony O’Hara, Phil Whiteman and Ron Harper for access to some data.

Disclosure statement

No potential conflict of interest was reported by the author.