AFRC’s Role in Supporting Forest-based Economic

Development

Arkansas Forestry Association Annual Meeting

24 September 2014, Hot Springs, Arkansas

Matthew H. PelkkiProfessor and George H. Clippert

Endowed Chair

Getting forestry on the public’s radar

Linking forest health/sustainability to forest economics

Research in forest economics

Direct studies in support for economic development projects

The primrose path….

Getting the forestry the public’s radar

AFRC’s Role in Supporting Forest-based Economic Development Arkansas Forestry Association Annual Meeting24 September 2014, Hot Springs, Arkansas

Report by Division of Agriculture◦ In conjunction with Dr. Jennie Popp

of UA-Fayetteville

Agriculture contributed

$20,117,634,954 to Arkansas’s economy in 2012

Economic Impacts of Forest Industry

#4 in the US South in saw log production

21,375,000 tons of timber production in 2013

Value in timber production of $398,470,000 to landowners

Forest Industry’s Contribution to Arkansas’s economy

24,736 jobs

$1,411,000,000 in wages

$3,243,000,000 in value-added

Direct Contribution to Forestry

Employment Wages(millions of $)

Value Added(millions of $)

Direct 24,736 $1,411 $3,243

Indirect (multipliers) 27,640 $1,124 $2,222

Total Impact 52,376 $2,535 $5,465

Economic Multipliers for Forestry in Arkansas 2014

Local civic leadership

Economic development agencies

Market update presentations to landowners and foresters

Getting the economic news out to…

Linking forest health/sustainability to

forest economicsAFRC’s Role in Supporting Forest-based Economic Development Arkansas Forestry Association Annual Meeting24 September 2014, Hot Springs, Arkansas

A healthy forest

industry=

A healthy forest

Softwoods Hardwoods0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

9,9

44,9

83

7,2

11,1

36 Growth

RemovalsExcess

Gre

en

ton

s

Arkansas Statewide Growth to Drain Ratios

Softwood data for Arkansas

1975 1980 1985 1990 1995 2000 2005 2010 20150

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

14,000,000,000

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

800,000,000

900,000,000

Growing StockGrowthMortality

Hardwood data for Arkansas

1975 1980 1985 1990 1995 2000 2005 2010 20150

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

14,000,000,000

16,000,000,000

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

400,000,000

450,000,000

500,000,000

Growing StockGrowthMortality

Softwood Mortality: North AR vs South Arkansas

1975 1980 1985 1990 1995 2000 2005 2010 20150

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

Softwoods NorthLinear (Softwoods North)Softwoods SouthLinear (Softwoods South)

Hardwood Mortality: North AR vs South Arkansas

1975 1980 1985 1990 1995 2000 2005 2010 20150

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

Hardwoods NorthLinear (Hardwoods North)Hardwoods SouthLinear (Hardwoods South)

Mortality as a percentage of total growing stock volume

FIA Inventory

Year

South Arkansas North Arkansas

Softwood Hardwood Softwood Hardwood

1978 0.42% 0.83% 0.24% 0.62%

2013 0.43% 0.92% 0.86% 1.14%

Carbon payments for:◦ Carbon in forest (trees, plants, soil)◦ Carbon in long-lived wood products

Compared 100-year carbon accumulation and payments from three southeast Arkansas pine regimes:◦ Natural even-aged pine (48-year rotation)◦ Standard pine plantation (30-year rotation)◦ High-intensity pine plantation (25-year rotation)

Valuing Ecosystem Services: Carbon Sequestration

Valuing Ecosystem Services:

Carbon Sequestered in Wood Products from Three Even-Aged Pine Regimes in SE Arkansas

Present Value ($/ac) of carbon at $10/mT and 6% is….

Intensive Plantation

$110

Standard Plantation

$35

NaturalPine$42

Value of ash harvests in 2013 ~ $2.17 million

Value of all ash growing stock in AR ~ $351 million

Estimated risk including urban forests for treatment, removal, and replacement is $471 million

Potential costs of the Emerald Ash Borer

Research in forest economics

AFRC’s Role in Supporting Forest-based Economic Development Arkansas Forestry Association Annual Meeting24 September 2014, Hot Springs, Arkansas

Ouachita and Ozark National Forests

Economic impact of ecosystem restoration project spending in local communities

Long-term economic changes due to different timber harvests, reduced fire risk, hunting revenues, and eco-tourism

Economic contribution of collaborative forest land restoration projects

Using numerical methods to optimize rotation length, composition, and density of forest stands

Potential uses in stand valuation, and adjusting regimes to changes in timber prices and interest rates

Optimal timber management for financial returns

f (Y ) = r (T )N

NN nn = 0 n

Subject to:

Y + G (Y ) - T = Y (n=0, 1, 2, ..., N-1)n n+1nnn+1

X - T = 0N N

f (Y ) = max {r (X ,T )+ f (Y )}n-1n-1nnnnn

(Y ,T )n-1 n

Objective Function:

X - T = Yn n n

NT

Volume

Stagenn-1

Entering value = $75

Entering value = $73

Value of residual standafter lookahead = $240

Value of residual standafter lookahead = $250

A

B

r G (Y )LLL

nr (X , T ) + f (Y )nn n-1 n-1

Node A = $73Node B = $75

Node A = $250Node B = $240

Possible “states” of a shortleaf pine stand

0

200

400

600

800

1000

Cu

bic

fo

ot v

olu

me

pe

r a

cre

0 200 400 600 800 1000 1200 1400 1600 NT / acre

0

500

1000

1500

2000

Cu

bic

fo

ot v

olu

me

pe

r a

cre

0 200 400 600 800 1000 1200 1400 1600 NT / ac re

Age = 10 yearsAge = 30 years

Upland Hardwood Management on River Hills Tract, Bethesda Livestock and Forestry Branch Station

Economic returns from forest investments

Stand A: Diameter Limit Cut (12")

Value Today $2,730 Harvest $2,639 Residual $91

Value in 20 years $124

A 1.6% value growth rate

Stand B: Improvement Harvest

Value Today $2,822 Harvest $1,470 Residual $1,352

Value in 20 years $6,911

An 8.5% value growth rate

New products and markets

Direct studies for economic development

projectsAFRC’s Role in Supporting Forest-based Economic Development Arkansas Forestry Association Annual Meeting24 September 2014, Hot Springs, Arkansas

Using FIA data and timber market data, and estimates of logging and transport costs

Short-term (5-10 year) supply

Long-term (25 year supply)

Timber supply

0 2,000,000 4,000,000 6,000,000$20

$30

$40

$50

$60

$70

$80

$90

Supply Curves

Current MarketModerate GrowthStrong GrowthDemand of 2,500,000 tons

Green tons of delivered woodD

elivere

d p

rice p

er

ton

Highlight major economic and demographic sectors

Provide impact analysis for forest product sectors

Ashley County 2014

Economic profiles for Arkansas Counties

Ashley County Totals

Population 21,524

Land Area 921 sq. miles

Value-Added $1 Billion

Employment 11,029

Average Employee Compensation

$38,529

Forest Industry Totals

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Value-Added $456 million

Employment 1,986

Average Employee Compensation

$77,776

Economic Development Studies

Questions and discussion