Forest Research Institut Baden-Württemberg (FVA)
Division Manager Forest Economics
Tel: +49 761 4018 262
Fax: +49 761 4018 333
Implementing restrictions for silvicultural land use with origins in nature conservation e. g. Natura 2000 or the Water Framework Directive can, in certain areas, lead to changes in the resulting revenues. Widely found restrictions include changes to tree species composition, prolongation of rotation periods or an overall less intensive exploitation.
|Fig. 1: Hardwood planting on a stream bank.|
On the basis of a valuation concept for forestry utilization reduction introduced by Möhring & Rüping (2006, 2007), the FVA developed a web-based program to calculate losses in earnings, which arise as a consequence of varying from a typical forest management, which means primarily orientated towards timber production. The methods used are based on the annual timber production value. This results from the incidental, irregular expenses and revenue streams over the stand life, which directly relate to forest production. These cash-flows, allowing for an annually constant interest rate, lead to an annual timber production value.
Prof. Möhring from the University of Göttingen was the first to derive the annuity, the annual value from the capital value, for forestry use. Möhring showed that with the help of the annuity it’s possible to translate an erratic cash-flow, which arises over the course of a rotation period, into a yearly constant cash-flow. In principal, the established performance indicator can be determined annually during the course of the timber production and was identified by Möhring as the annual timber production value.
This term was also chosen, because with this evaluation approach, only the figures directly related to timber production e. g. plantation, thinning and timber harvesting are included in the calculation. Also the fixed costs of administration are not considered. Costs resulting from the transformation and conversion towards the desired cultivation method and composition of the stand are not included in the following findings and would have to be calculated separately.
For practical valuations, the annual timber production value offers the advantage that in comparison to the capital value, which relates to long and partly also different time periods, it is stated as an annual amount per hectare. In addition, this annual forestry figure allows for a relatively easy comparison with other figures. The timber production value is therefore a comparative figure, which can be compared for various tree species or rotation periods.
It must be clearly pointed out, that changes to market values, for example arising through a protected area classification and compensated for in terms of compulsory acquisition payments, will not be covered by the valuation concept. Also, possible changes in administrative costs will not be considered. The calculated amount should rather serve as a business case argument for discussions about the implications of long-term restrictions to silvicultural land use.
The annual timber production value can be tabulated for various tree species and yield classes over different timescales within various timeframes. These tables were calculated by the FVA for the main tree species as nationwide averaged values. Comprehensive computer-based simulations served as a basis for these calculations. Production models for a silviculture with restricted management choices due to nature conservation were derived from an evaluation of actual German FFH-Management schemes.
The calculations are carried out for all tree species with an interest rate of 1.5 %, which approaches an average long term internal rate of return on the capital investment of a forestry enterprise. Möhring, for example, calculated the marginal return on spruce and beech management as between 1.5 % and 2 % (Möhring 2001).
The calculation is based on averages, model assumptions and/or treatment methods. Therefore, applying this data in practical valuation situations presupposes a local check of the base data. Also the calculated earnings should not be misunderstood as a "fair" compensatory amount. Compensatory payments incorporate other disadvantages, which can come for example, from additional administrative expenses, reduced operating flexibility etc. An adequate adjustment also always assumes a negotiation process between the forest owner and those community groups interested in changing the use of the forest, whereby the resulting disadvantages should at least be balanced out. In order to satisfy the conditions of various perspectives, calculations for various yields are carried out.
|Fig. 2: Overview of the calculation options.|
The calculation program is realized on FVA’s internet server via a PHP-Program and a SQL database. It enables the calculation of changes to tree species and rotation periods. Basic calculations of the Timber Production Value, capitalization of annual values and the economic rotation period based on the underlying tables are also possible. The program was developed in the context of the Economic Costs to Implement the WFD (by the Forest Economy department of the FVA Baden-Württemberg) and "SILVAQUA – Pilot project to implement the WFD in Lower Saxony" (Forest Economy and Management department at the University of Göttingen). The presented annuities originate in the research project "Restricted Forest Management", conducted most recently by the FVA.