Fertilization ofPinus radiataplantations after thinning. II Investment potential

Abstract

Summary Following identification of potential productivity gains from post-thinning fertilizer treatments (N+P) in NSW Pinus radiata plantations, financial analyses are undertaken for treatment of defined resource strata. Deterministic and stochastic approaches are employed in the estimation of key financial indicators. The latter technique enables risk (variation in cost and revenue parameters) to be explicitly addressed by definition of probability distributions describing the cost of fertilization, productivity gains due to fertilization, product mixes and prices and the difference between rates of inflation for costs and revenues. Monte Carlo simulation techniques are employed to generate probability distributions for Net Present Value (NPV), Benefit/Cost Ratio and Internal Rate of Return (IRR). Investments are compared on the basis of the expected values of NPV, B/C ratio and IRR and associated cumulative probability distributions. The methodology enables forest managers to routinely evaluate investment options on a site, plantation and market specific basis. Post-thinning fertilization of P. radiata plantations is demonstrated to be a potentially successful investment strategy (expected rates of return exceeding 8%) but the financial performance of fertilizer treatments within different resource strata varies considerably (mean NPV's between $62 ha −1 and $1169 ha1 from the stochastic model). This variation highlights the need for careful treatment selection and prioritization to maximise net benefits. Sensitivity analyses reveal that sawlog prices and volume gain (due to fertilization) are the main factors influencing investment performance. The “risk adverse” nature of many of the component distributions (volume gain and product mix) meant that expected values of the performance measures were lower under the stochastic simulation than calculated by the deterministic approach and rankings of investments were slightly modified when investment risk was considered. Under four of the five investment strategies there is at least a 90% probability that an IRR of 8% will be achieved.