Economic analysis of near-natural beech stand management in Northern Germany

Abstract

Based on an empirical study of the forest practise at Lauenburgische Kreisforsten in Northern Germany an economic analysis of near-natural beech stand management is performed. The profitability, cash flow and economic flexibility of near-natural management (NNM) is compared to that of converting to: (i) Norway spruce, (ii) a clear felling beech regime with a rotation of 120 years (CF) and (iii) a cyclic beech regime with a regeneration thinning at stand age 90 and liquidation of the last holdovers at age 110 (CYC). The internal rate of return (IRR) of NNM is 2.9%, which for many investors would be a satisfactory real rate of return. For required real rates of return less than 2.5%, the net present value (NPV) of NNM exceeds the NPV of clearing the stand and planting Norway spruce at all stages of the rotation as well as the NPV of the two alternative beech regimes. When comparing the profitability of the alternatives using IRR as criteria, both of the alternatives CYC (IRR=3.3%) and Norway spruce (IRR=3.1%) should be preferred above NNM and CF (IRR=1.8%). However, it was discussed that when comparing investment alternatives like those presented in this paper the choice between investment alternatives should be dictated by their NPV at the required rate of return and not their IRR. In comparison to the management alternatives CYC and CF, NNM provides high mean annual net revenue, which exhibits relatively small fluctuations during the rotation. The latter may be important, especially at forest districts which do not have forest stands in the entire range of age classes and therefore may foresee periodical lack of liquidity. Due to the prolonged retention of the holdovers, the accumulation of capital in the forest is greater for NNM than for CYC and CF. Since economic flexibility of a silvicultural regime to a large extent is associated with the ability to accumulate liquid reserves in the forest, NNM may provide the owner with greater economic flexibility than the two shorter-rotation beech alternatives. It is concluded that near-natural beech stand management may provide an economically sound alternative to other, more traditional regimes for investors having a required real rate of return within the range common to most forest investments.