Applied Forest Economy

Lennart Eriksson

Co-operation partners

• Prof Nikolay Moiseev, MSFU• Prof Galina Filyushkina, ARICEF • Dr Per Hazell, Swedish Forest Agency• Prof Lennart Eriksson, Swedish University

of Agricultural Sciences

Applied Forest Economy

THEORY OF FOREST ECONOMY and

FORESTRY APPLICATIONS

Development of the course• Discussion in Sweden of alternatives for the

course

• Presentation for a planning group in Moscow of a structure and of examples of the content of the course

Development of the course (cont)

• Presentation for lecturers of a developed content of the course expanded with economic analyses and combined with studies of applications in the forest

• Development of material from studies and analyses for presentations and production of a verbal description of the theory with applications

Useful wood is produced by:

• Stand establishment• Tending of stand• Cleaning• Pruning?• Thinning• Fertilizing• Wounding up the matured stand• New stand establishment• •

An uncleaned stand with stems of wrong species, too many stems and damaged and dying trees

A managed stand after first thinning

Silviculture - investment desicions with limited resources

• Normal profit should be required• Regard for time aspect of costs and revenues

(net present value)• Use of relevant rate of interest (reduction for

taxes on external investments)• Correction of the rate of interest by inflation

(real rate of interest)• Desicions under risk• Calculation gives better allocation of limited

resources

The rate of interest

• The basis for the rate of interest is given by the financial situation of the company/the owner of the forest

• For practical reasons – correction for inflation• Tax correction since no taxes are applied on

annual growth in the forest• Risk should not be regarded in the rate of

interest, rather directly on revenues and costs

The rate of interest, calculation example

A nominal rate of interest in a bank account of say 10 percent is transformedinto a rate of interest after taxation (30%)like the following:

Rate of interest after taxation: 10*0.7=7%

A correction for inflation of say 5% gives:(1+r/100)=(1+7/100)/(1+5/100)≈1.019r≈1,9%

The diameter effect

Revenue, cost and net revenue at cut over diameter

-100-50

050

100150200250300350400

0 10 20 30 40 50

Diameter, cm

Sek

per h

ecta

re

Kostn./m3Intäkt/m3Netto/m3

Production cost at saw millSawn volume per saw hour

0

20

40

60

80

100

100 150 200 250 300 350

Toppdiameter, mm

Rel

ativ

pro

dukt

ion,

pro

cent

Optimal age of cut 

        

  

Economical growthExpected rate of interest

Opt. age of cut

Stumpage valueSurplus value

Ground value

Loss of capital

Time, years

Value, SEK

The ground value

• The present value per hectare of all future net incomes

• Important for:– A relevant choise of stands for clear cut– An efficient allocation of resources at stand

etablishment– A good basis for evaluation of ground for

purchase

Volume development after cleaning to 1200 stems per hectare, spruce.

0

50

100

150

200

250

300

0 20 40 60 80 100 120 140Age, yrs

Stan

ding

vol

ume,

m3/

ha

Traditional cuttingImproved cutting

Fertilizing

• Very profitable– Almoast matured stands are the most

profitable– Dense stands with high wood quality– Proper tree species– Not very low site index class < 3 m3/ha/yr– Not very high site index class > 10 m3/ha/yr

• 2-3 repeated treatments may be profitable

Adaptation to local conditions

• Use the natural regeneration when possible (must be combined with cleaning)

• Location close to end user motivates to a more intensive forest management (higher level of investment)

• Location far from end user motivates to production of high graded round wood and of more processed products (i.e. IKEA’s dence packed furniture)

• High investment level on good sites

System maintenance

• Repeated meetings for discussions and calculation exercises

• Building up of a question/answer box by means of internet

• Develop type analyses for different situations in Russian forestry

• Educate ”missionaires” distributing the economic way of thinking in forestry

Continued co-operation

• Employ guest lecturers• Exchange material for lectures• Financiation by means of governmental

subsidies• Financiation by means of involved

companies

Continued co-operation (cont)

• Distribute schedules for seminar series between faculties of forestry

• Exchange of students between faculties• Use of foreign opponents at dissertations• Recruiting people from other countries for

employment