Rethinking the forestry in the Aquitaine massif through portfolio management

Abstract

The Aquitaine massif, in the South-West of France, is home to the largest Pinus pinaster monoculture forest in Europe. In light of the possibility of occurrence of severe natural hazards, such as the pine wood nematode, what could or should be done with the land historically dedicated to the culture and the exploitation of maritime pine? In order to address this critical question, we make use of the well-known portfolio management and apply it to the spectrum of opportunities that can be seized in the Aquitaine region. The optimal land-use allocations are based on two models from the literature on portfolio theory, i.e. the Markowitz mean-variance model and the conditional-value-at-risk (CVaR) model. Historical data and Monte Carlo simulated data are both considered in the study. According to our results, low levels of risk imply the preponderance of one asset, whereas severe levels of risk are further reflected in greater portfolio diversification. Yet, greater diversity does not necessarily imply uniform allocation of assets. Moreover, the outputs from the CVaR assignment programs, based on data sampled from normal and non-normal distributions, attach greater deal of importance to the risk minimization. In practical terms, we find that extreme losses lead to mixed-asset portfolios that are inclusive of market gardening and of grain production. Therefore, investments in forestry should not be abandoned but rather enriched by agroforestry practices. As for the eventual production of solar energy, the investment turns out to be an economic bet.