Forest Economics & Management

What is Forest Economics?

study of how scarce forest resources are allocated to meet human needs. Not just money, but social, environmental and biological values too.

Forestry land, irrigated agriculture water usage and focal genera

1.2mil (~1%) hectares land, 4.6% water, and Eucalyptus, Pine and Wattle.

Employment and Econimic contribution

150 000 jobs (18% of agri employment)
R69bil to GDP (~1.9%)

Positive trade balance: R8.4bil

16mil tons produces annually

Core economic concepts

scarcity - limited resources vs unlimited wants

opportunity cost - value of next best opportunity

optimization - choosing best use of resources

PPF

Production Possibility Frontier - the graph.

attainability and efficiency

Capital and economic capital visible

value of sum of money at a given time

land, trees, equipment & infrastructure

Income and price dependants, costs and breakeven analysis

Timber volume & timber price

Type of product, price cycle, supply & demand, and quality

Fixed costs & variable costs. Total manufacturing costs / #units manufactured

income = costs

Unique features of Forestry economics

Long investment period

dual nature of trees: factory and product

flexibility in rotation age & product type

high inventory-to-production ratio

at clear-fell recover invested capital + profit

LEV

Land Expectation Value - max price for land to still earn desired return

NPV

Present value - driving force that determines land use when maximised

Cut too early vs cut too late

Loose volume

Product not suitable or mortality

Silvicultural decisions

Planting density, thinning, pruning, fertilization

Balance between cost, quality & volume

Harvesting economics

manual vs mechanised systems

compare fixed and variable costs

optimise for efficiency and profitability

Demand and Supply shifters

income, tastes, population.

input costs, technology, regulations

Positive & Negative Externalities

Pollution from pulp mill & noise

Forests absorb CO2, scenic beauty attracts tourism, biodiversity supporting ecosystem services.

Externalities causing market failures

Externalities cause market failure because their costs/income are not reflected in market prices, which lead to overproduction of harmful goods or underproduction of beneficial ones.

Justifies government intervention to help correct these inefficiencies.

Constraints on growth

Fire loss: ~18k ha lost annually (~R546mil)

Pests and diseases: ~13k ha lost (~R392mil)

Forestry Economic strengths

Opportunities

Small growers and cooperative

ForEcon summary

ForEcon blends ecology, business & policy

Involves long-term thinking & complex trade-offs

Essential for forest management

4 Basics of Forest Management & Basic resources

Planning, organisation, activation/implementation, control.

Man, materials, machines, methods, money & markets (6 Ms)

Forest Management

deals with making decisions, communicating, motivating, coordinating, delegating tasks & implementing corrections/disciplining actions to ensure the sustainability of the forest enterprise in terms of social, economic & environmental impact.

Economic challenges

Breakeven & profit, budget, competitive financial returns

Bio-physical challenges

Land, water, climate, soil

Social challenges

Employment, externalities, neighbours, customers

Technology challenges

Silvicultural & harvesting, data collection, planning processes

Challenges lead to uncertainty

long rotation periods, risks

Managment plans considertations

challenges, uncertainty & creating order

Stragegic planning

long-term (5-10 years)

set vision

define company, products, industry

Tactical planning

shorter-term (3-5 years)

focus on implementing strategies

tied to market forecasting

compartments to be harvested

tied to periodic block

align man & machine requirements

Operational planning

annual operations

which activities happen when

scheduling of activities

matching resources with activities

Steps in harvest planning

Enumeration

Determine current volume

Compartment list

Project total volume at rotation age & thinning

Determine MAI

Standardise areas

Periodic block scheduling

APO from first period block

Management prescriptions

Developing, evaluating & applying prescriptions

Central activity of forestry

Management descisions

• Goals of guide management.

• Historical processes by which forest developed in area.

• Organisation and classification of my forest by its vegetative, physical & developmental charts.

• Kinds of alternative management prescriptions to be considered for each strata, parcel or patch

• Methods & data to be used to make quantitative projections of growth and yield, several stages, habitat conditions, sedimentation, cost, revenue & other conditions & outcomes