9 Forests and Forest Land Resources, Part 1

• Suppose we have a stand of timber trees all of the same species and

  age

  • We know standing volume of timber as a function of age of stand
  • We ignore nontimber values

  When should we harvest the stand?

  • Single rotation: ignore subsequent harvests
• Age, volume, and growth of A forest stand

  A) sigmoid curve

  
• Numerical example in subsequent tables: typical, single species forest stand

  • Stand regenerates naturally
  • no planting costs, and
  • no silvicultural treatments
  • no management costs)
  • Resource rent (economic surplus) per unit of harvested timber is PhP 50/m3
  • “Stumpage value”
  • Calculated as: Log price – Logging cost
• Try to answer:

  A) MAI

  B) CAI

  
• Sigmoid curve: age-timber volume: V(t)

  A) age-timber volume

  
• Forester’s harvesting rule

  • Harvest the stand when average growth is the highest
  • “Mean annual increment” (MAI) = Volume divided by age of stand = V(t)/t
  • Corresponds to MSY in fishery
• Economist’s harvesting rule

  • Harvest at the age, t* , that maximizes the net present value (NPV) of the timber harvest

  Net value of the harvest at any age t:

  • = Stumpage value times harvest volume
  • = (p – c) V(t)
• Present value: need to adjust for the “time value of money”
• Discounting: procedure that converts future values to present values
• Net value of harvest: (p – c) V(t), where p – c = P500/m3

  
• NPV:

  Try to solve

  
• Forester vs. Economist

  • Economically Optimal Rotation Age vs. Forester's Rotation Age:
  • EORA is determined by maximizing the net present value (NPV) of timber harvesting, considering timber growth rates and market conditions.
  • FRA may prioritize ecological or silvicultural objectives, like maintaining forest health or biodiversity, which could lead to a longer rotation age
  • NPV:
  • Forester's NPV may be lower than the economically optimal NPV due to factors like longer rotation ages, conservation measures, or non-market values not captured in economic calculations.
• Forester vs. Economist

  • Impact on the Forest:
  • A lower NPV from the forester's emphasizes non-economic values like ecological sustainability or LT forest health.
  • beneficial for the forest in terms of biodiversity, ecosystem services, and resilience
  • Economic Intuition:
  • Money typically grows faster in the bank due to compound interest, represented by the growth rate 'i'.
  • The growth rate in the forest depends on various factors like tree species, age, climate, and management practices' varies but generally lags behind the growth rate in the bank due to slower compounding of natural resources.
• “Current annual increment” (CAI)

  A) V ′(t)/V(t)

  B) V ′(t)

  
• Growth rate in forest: V ′(t)/V(t)

  A) V ′(t)/V(t)

  
• Infinite-rotation problem

  • Suppose, instead of harvesting the stand just once, we manage it for timber production on a permanent basis and harvest it repeatedly
  • Is the optimal rotation the same as in the single-rotation case?
  • No: it is shorter (“Faustmann formula”)
  • A shorter rotation reduces the NPV of the first harvest, but it increases the NPV of the future harvests (by bringing them closely to the present)
  • If we encourage forest owners to think about the long term, they will harvest the forest sooner!
• Non-timber values: Benefits of forests to humans

  • Timber production

  • Fuelwood collection

  • Medicinals, nutricals, and other traditional products

  • Genetic resource values

  • Hydrological functions

  • CO2 sequestration

  • Habitat, nutrient cycling, pollination

  • Recreational opportunities

  • Spiritual values
• These values are not mutually exclusive

  
• 1. Water values relationship with stand age and rotation interval
  2. Aesthetic values X stand age and rotation interval

  
• 3. Combined non-timber values

  4. Present values including timber values

  A) N*

  B) B*

  C) I'

  
• Between 1990 and 2000, 94 million hectares of forest were lost

  • About two Californias
• Myth 1: Deforestation was caused by consumption of timber in rich countries during 1990-2000

  • Most of wood harvested in developing countries is fuelwood, not industrial roundwood (only 21%)

  • Most of industrial roundwood is consumed within countries where it is harvested, not exported (only 20%), directly or indirectly

  • Developing countries import more industrial roundwood and products than they export (by 18%)
• The world is not running out of wood

  • Industrialized countries harvest less timber than they grow
  • Harvest from all sources is 79% of growth in North America, 59% in Europe, and only 16% in Russia
  • There is already a “tidal wave” of plantation timber, and more is on the way
  • Forest cover increased during 1990-2000 in the world’s most populous countries, China and India
  • also in the U.S.
• Myth 2: Deforestation was caused by increasing consumption of hamburgers in rich countries in the 1980’s

  • Amazonia has never been a significant exporter of beef
  • 1982: accounted for only 0.0007% of U.S. beef consumption, mainly processed beef (e.g., sausage)
  • Most of beef is sold within Brazil
  • In fact, Brazil was net importer of beef in most years
  • Same was true for Central America
  • But recent deforestation (post 2000) per WRI
• Why is the deforestation rate higher in poorer countries?

  • Because they are more dependent on agriculture, which uses land
  • Countries’ economies undergo structural changes as they grow
  • The share of agriculture decreases, while the shares of manufacturing and services increase
  • People leave rural areas and move to cities
  • Hence, deforestation slows down as countries become richer
• Microeconomics of deforestation

  A) At*

  
• Opportunity cost of land

  • Timber and nontimber values may be large, but are they as large as the values generated by other uses of land?
  • That is, there is an opportunity cost to forestry: the foregone NPV from other land uses, in particular agriculture
  • Households, companies, and governments in developing countries evidently think the answer is “no”: deforestation
• Opportunity cost of forest land: agriculture (a) vs forest (f)

  A) Tenurrial cost

  
• Multiple market values: Brazil nuts, mahogany, and lower-valued timber

  A) lower-valued

  
• So why worry about deforestation?

  • If farmers determine that land is more valuable in agriculture than in forest, isn’t deforestation a good thing?
  • Don’t the benefits outweigh the costs

  Deforestation leads to loss of biodiversity, disrupting ecosystems and causing species extinction.

  • contributes to climate change by releasing stored carbon dioxide
  • Soil erosion and degradation occur
  • Disruption of the water cycle affects local and regional climates and water availability
  • Indigenous communities relying on forests for livelihoods face social impacts.
• Reasons to expect deforestation rates to be too high

  • Agricultural subsidies: exaggerate benefits of conversion; ubiquitous
  • Historical driving force behind ranching in Brazil
  • government of Brazil offered numerous fiscal and financial incentives to ranchers in the Amazon
  • Tax exemptions for ranching income
  • Tax credits for ranching investments
  • Subsidized loans
• Reasons to expect deforestation rates to be too high

  • Insecure property rights: discourage land owners from thinking long term
  • Case studies and cross-country statistical studies provide evidence that deforestation rates are higher when property rights are less secure
  • Lack of markets: discourage land owners from managing forests for nontimber values
  • Carbon values; REDD+; Voluntary carbon markets.
  • Option values; Non-use values
• Reasons to expect deforestation rates to be too high

  • Agricultural subsidies: exaggerate benefits of conversion; ubiquitous
  • Insecure property rights: discourage land owners from thinking long term
  • Lack of markets: discourage land owners from managing forests for nontimber values
  • Option values; Non-use values
• Policy responses

  • Reduce agricultural subsidies
  • Strengthen property rights for forestland
  • Develop payment mechanisms for nontimber values, within and between countries
  • The Nature Conservancy
  • Private parks
  • Conservation concessions
• Nontimber values and the optimal rotation age

  • Conventional wisdom: many nontimber values increase with stand age
  • E.g., watershed protection, habitat for endangered species, existence values
  • When we add nontimber values to the timber-only model, does the optimal rotation get longer or shorter?
  • longer
  • presence of non-timber values can enhance the overall value of the forest, encouraging longer rotation periods to maximize the benefits derived from both timber and non-timber resources
  • Longer rotations allow more time to mature increasing their value and contributing to sustainable practices.
• Key messages

  A) fixed

  B) cutting

  C) perpetuity

  D) rate of return

  E) growth

  F) mean annual increment

  G) highest

  H) stumpage

  I) agricultural

  J) non-timber