VALUATION OF PLANTATIONS

Abstract

Summary The writer, being a forestry consultant, is often required to put a value on plantations. The principles on which he goes to work are explained. Valuation must be in terms of “Real Values”, that is, values that can be realized at any time. “Expectation” and “Cost” Values of the text books, unless they are also real values, cannot be defended. The value of a plantation is simply the value of the marketable timber it contains, provided the marketable value has been sufficiently developed. The only problem therefore is to find real values fur young plantations which carry on marketable timber or in which the marketable volume has not been sufficiently developed to justify valuation on the standing volume. It is explained how the point when the marketable value has been “sufficiently developed” can be fixed. It is merely when the plantation reaches “maturity”, but for the purposes of valuation “maturity” is defined to give it a meaning quite different from that attached to the term for the purposes of Forest Management. For the purpose of valuation, it is considered that a plantation is “mature”, not when the mean annual increment culminates, but when the rate of interest earned on an initial value by the development of the marketable timber in the plantation culminates. The initial value referred to is the value per acre of trees immediately after they have been planted, the age of the trees being zero. The initial value must he a real value, e.g. it is the price the owner, if he wishes to sell the ground on which the newly planted trees are standing, can reasonably demand for the trees and the price the purchaser can reasonably be expected. to pay. It would cover the normal cast of planting per acre (excluding subsequent maintenance) plus a fair profit for the owner. The initial value being fixed, it becomes the “Standard Initial Value” for all plantations of age zero and costs do not enter further into the calculations. The actual value per acre of marketable timber normally yielded by the plantations of different ages is ascertained from yield tables or otherwise. For a few years at first the value will be nil or will not exceed the Standard Initial Value and up to that point the interest earned by the development of the marketable timber will be nil. With the further development of the marketable timber, the interest earned will rise rapidly to a peak and will then progressively decline with the advancing age of the trees. At the peak the plantation is “mature” and at that age the real value of the plantation is the value of the marketable timber yielded. The values for earlier ages are ascertained by discounting the value at “maturity” at the rate of interest actually earned, the results being expectation values which are also real values. After the age of maturity the value of a plantation is merely the value of whatever mechantable timber it contains. Because the rate of interest earned by the merchantable timber is falling, there can be no such thing as an expectation value which is greater than the value of the marketable timber after the age of “maturity”. When owners are deprived of their trees against their wishes they often claim compensation out of all proportion to any real values that can be attached to the trees. Their arguments are examined and it is shown that claims for compensation in excess of real values cannot be sustained.