Financial, economic and environmental profitability of reforestation of Imperata grasslands in Indonesia

Abstract

The reforestation of Imperata grasslands is considered financially, economically and environmentally important. The successful establishment of a forest plantation on Imperata grassland needs heavy investment at the outset. It was estimated that the minimum establishment costs are US$840/ha. The total pulpwood production costs at the mill gate were calculated to be US$21/m 3 by water transport and to US$27/m 3 by road transport. During the first rotation, roundwood production in fast-growing plantations resulted in a real rate of return of 3.3% on the investment with the present pulpwood price of US$20/m 3 and a mean annual increment (MAI) of 25 m 3/ha. The relatively low financial profitability is mainly due to the country's undeveloped pulpwood markets. The IRR rose to 18% when the present roadside price was applied as a stumpage price. The support by the Indonesian government's industrial timber estates (HTI) scheme raised the IRR to 7%. Financial profitability was sensitive to the roundwood price and harvesting costs. The reforestation of Imperata grassland was more profitable economically than financially, resulting in an economic rate of return (ERR) of 21%. When the environmental economic impacts are taken into account the reforestation can be considered very profitable, raising the value of an area from US$1000 to 2500/ha. In this study, the following conclusions can be drawn: (1) a high MAI can only be reached with intensive establishment and management; (2) roundwood price should be allowed to fluctuate according to demand and supply; (3) reliable estimation of the harvesting costs before starting a project is recommended; (4) an adequate prefeasibility study of a forest plantation should be a prerequisite for the investor before the government's financing or other incentives are offered; (5) the government's support should be provided according to the real costs; and (6) application of incentives is justified in economically, socially or environmentally profitable projects but not in financially profitable projects.