Forest Investment Research Articles

Why do forests respond differently to nitrogen deposition? A modelling approach

Elevated reactive nitrogen deposition can result in declines in belowground C allocation to mycorrhiza, potentially threatening the sustainability of forest ecosystems, especially with regard to ongoing global environmental changes. Previous studies showed that the vulnerability of mycorrhiza differs in different forests. In this paper, we introduce a model that explains such differences as resulting from the optimization of belowground tree C investment in forests with inorganic or organic N economy. According to the model, the optimization of belowground tree C investment in forests with organic N economy is governed by indirect competition between trees for available forms of N. We predict decreasing C investment in mycorrhiza with N deposition in systems dominated by an organic N economy. In contrast, in forests with inorganic N economy the optimization of belowground tree C investment is governed by direct competition between trees for available forms of N. We show that C investment in mycorrhiza does not depend on N deposition in the case of inorganic N economy. Parameterizing the model with data from spruce and beech temperate forests, we show that spruce forests are more sensitive to N deposition with a decrease of tree investment in mycorrhiza, which seems to be consistent with empirical findings. As mycorrhizae are essential for nutrients and water acquisition in trees, we suggest our approach could contribute to predicting the responses of forests to global environmental changes.

Research trends: Adding a profit function to forest economics

The Faustmann formulation (or FF) has been widely adopted in determining the optimal rotation and the concomitant net present worth of timber production. Nonetheless, the FF is not a profit function, and there has not established such a function, along with its dual cost and production functions, in virtually all the forest economics texts. Without such a set of functions, however, a large part of the production economics that is broadly used in other sectors of the economy remains absent in forestry. With them, we can more effectively approach and analyze timber supply, forest investment, ecosystem service provision, and other issues at the appropriate, aggregate level(s). Adding a profit function to forest economics will thus be a major step forward in advancing the disciplinary instruction and research beyond a timber stand.

Collective Action Dilemma after China’s Forest Tenure Reform: Operationalizing Forest Devolution in a Rapidly Changing Society

Devolution is a promising tool to enhance forest management. The literature has discussed many factors that affect the outcomes of forest devolution policies; however, insufficient attention has been paid to the role of exogenous socio-economic changes. Using the longitudinal case study method, we focus on how socio-economic changes affect the effectiveness of forest devolution policies using a case from Southeast China. We find that in this case, although forest devolution succeeded in granting farmers sufficient forest rights, it failed to incentivize farmers to contribute to managing forests because of the dramatic changes in socio-economic contexts. Economic development and outmigration reduced farmers’ dependence on forest income, elevated the costs of silvicultural operations, and posed market risks, thereby reducing farmers’ enthusiasm about managing forests; outmigration also weakened community leadership and impeded the collective action of making forest investments. Eventually, socio-economic changes compromised the positive stimulus caused by forest devolution and contributed to the collective action dilemma of managing forests after the reform. We argue that operationalizing forest devolution in developing countries needs to consider the exogenous socio-economic changes that may enhance or counteract the effects of devolution policies, and that more autonomy should be granted to communities to make policies adaptative to their local socio-economic dynamics.

“Forest Investment and Forestry Management in Foreign Countries: What the Worldʼs Forestry Management Asks” edited by Forest Investment Research Group (Book Review)

“Forest Investment and Forestry Management in Foreign Countries: What the Worldʼs Forestry Management Asks” edited by Forest Investment Research Group (Book Review)

A Mathematical Model for the Integrated Optimization of Harvest and Transport Scheduling of Forest Products

The costs related to forest harvesting and wood transport are key to the economic viability of forest investments. These operations compose a major share of the total cost of wood production and thus need to be conducted in an efficient manner. In this paper, we propose a novel optimization model to tackle this issue and perform the daily and weekly plan of harvesting operations, in order to minimize the costs related to the machinery operation, movement, and wood transportation, subject to demand constraints. Our results show that transportation costs dominate the total cost of these operations. The model proposed is appropriate and can be effectively applied to optimize the operational planning of harvesting activities. Nevertheless, instances with a large number of stands may lead to a substantial increase in the complexity and computational burden. We conclude that operations research techniques can provide a solid basis for decision-making in harvest scheduling problems and increase the efficiency of forest management.

What is the Value of an Existing Forest Stand?

Traditionally, the land expectation value (LEV) formula, the present value of perpetual cash inflows of timber revenues minus the present value of cash outflows of costs, has been employed as the main indicator of the value of a forest investment. However, when a forest stand is already established, the LEV approach is incomplete because it applies only to bare land. Thus, it is necessary to determine the value of a property with an existing forest stand. This 3-page fact sheet written by Andres Susaeta and Chris Demers and published by the UF/IFAS School of Forest Resources and Conservation provides the formula to determine the value of an already established forest stand at any stage of its development. This approach, known as the forest value formula, includes the value of the timber and the land. It can be used to compare the value of the stand when it is immediately harvested or when it is economically immature. http://edis.ifas.ufl.edu/fr423

Forest Investment Framework as a Support Tool for the Sustainable Management of Planted Forests

Planted forest ecosystems provide a wide range of goods and services such as timber, carbon sequestration, and avoided erosion. However, only ecosystem services with market values (e.g., timber) are usually represented in decision making while those with non-market values (e.g., avoided erosion) that are difficult to quantify are often ignored. A spatial economic tool, the Forest Investment Framework (FIF), integrates data from forest growth models with spatial, biophysical, and economic data, to quantify the broader value of planted forests and to represent non-market values in sustainable forest management. In this paper, we have tested the applicability of FIF in three types of case studies: assessment of afforestation feasibility, regional economic analyses, and ecosystem service assessment. This study provides evidence that a spatial economic tool that quantifies the economic, environmental, and social values of the planted forest ecosystem is valuable in informing land management decisions for maintaining and enhancing the provision of market and non-market ecosystem services to society.

Land Restoration in Latin America and the Caribbean: An Overview of Recent, Ongoing and Planned Restoration Initiatives and Their Potential for Climate Change Mitigation

Land degradation is a globally recognized problem and restoration of degraded land is currently high on the international agenda. Forest landscape restoration and other restorative ecosystem management activities are important measures that contribute towards reaching the objectives of the Bonn Challenge, which aims to restore 350 million hectares by 2030. In this context, many restoration projects are being planned and implemented in Latin America and the Caribbean (LAC). We present an overview of the location, goals and activities, and an estimated climate change mitigation potential of 154 recent, ongoing and planned restoration projects in LAC. Our analysis suggests that most projects are located in the humid tropics and less attention is paid to drylands. Increasing vegetation cover, biodiversity recovery and recovery of ecological processes are the most common goals. Restorative activities to fulfil these goals were diverse and were related to the type and source of funding that projects receive. For example, projects implemented through the Forest Investment Program (FIP) and the Global Environment Facility (GEF) generally rely on natural or assisted regeneration over large areas (>20,000 ha), whereas Clean Development Mechanism (CDM) projects establish forest plantations, often including exotic monocultures, in smaller project areas (<5000 ha). Projects that are specifically implemented within the scope of Initiative 20 × 20 and other local initiatives that target the local environmental problems, are more varied and rely on a wider portfolio of restorative activities, such as erosion control, exclusion of grazing and mixed plantations. These projects are usually implemented in smaller project areas (<5000 ha). All projects had the potential to contribute to climate change mitigation by storing additional forest aboveground biomass through natural regeneration, assisted regeneration or establishing a plantation. Further analysis of the implemented activities is an important next step to investigate their effectiveness in terms of goals achieved under Initiative 20 × 20 and the Bonn Challenge. This would provide information for future restoration projects and upscaling of restorative activities in a wider area.

Role of urban income, industrial carbon treatment plants and forests to control the carbon emission in China.

Present study contributes to the existing literature by introducing the role of urban income and urban expenditure to control the carbon emission, especially produced by urbanization. Additionally, investment in industrial treatment plant is used to study its impact in carbon reduction. By using the data of 30 Chinese provinces over the period of 2005-2015, we have reported that urbanization and industrialization are main culprits of the carbon emission, whereas the higher urban income leads to decrease the carbon emission that has been caused by urbanization, as mentioned by the negative coefficient of urban income. Moreover, the investment in industrial treatment plants help to reduce the industrial carbon emission. Post-policy estimations have confirmed that forest management can be a useful measure to eradicate the carbon emission. Overall, the findings confirm that higher urban income, industrial carbon treatment plants, and forest investment activities are useful to control the precipitous increase in carbon emission. Given results enhance the existing literature as well as deliver the policy implications to curtail the environmental degradation process.

Profitability of timber plantations on agricultural land in the Po valley (northern Italy): a comparison between walnut, hybrid poplar and polycyclic plantations in the light of the European Union Rural Development Policy orientation

In the last decades, the Rural Development Policy of the European Union has been encouraging timber plantations on agricultural land with an increasing focus on supporting multifunctional forest investments, favouring a diversification of timber plantation investment possibilities. In this study, we estimated and analysed the potential financial returns from forest plantations on agricultural land in the context of the Po valley (northern Italy). We compared traditional monospecific walnut and hybrid poplar plantations with polycyclic plantations, an innovative model of mixed and multi-rotation plantation with much higher positive impact in terms of biodiversity. We defined different management models according to site fertility and investment costs and carried out a financial analysis using typical capital budgeting indicators, i.e. net present value, equivalent annual value and internal rate of return. Our results show that polycyclic plantations can reach on average the highest investment returns, although there are significant variations depending on site fertility and investment cost levels. The diversification of species, rotations and final assortments of polycyclic plantations appear to be potentially successful elements to cope with market risks. Hybrid poplar plantations are the most consolidated segment of investment but show the largest variability in terms of potential returns. For walnut plantations, the longer payback period can negatively influence the investment attractiveness. Results were analysed and discussed also considering the opportunity costs associated with the alternative agricultural land use (annual crops), and the effect of subsidies, land use costs and timber stumpage price variations. These proved to be determinant variables in influencing potential investments returns.

Economic and non-economic sector reforms in carbon mitigation: Empirical evidence from Chinese provinces

The study examines the main contributors of carbon dioxide (CO2) emission in China and attempts to propose the economic and non-economic reforms to mitigate this emission. We use the panel data from 2004 to 2015 of 30 Chinese provinces to conduct the full sample, regional and policy-based analysis. Our findings have shown statistically significant and positive effects of coal consumption, oil consumption and industrialization on CO2 emission in China. In economic sector reforms, we find that increasing in investment for industrial treatment plans, such as carbon injection treatment, leads to a decrease in CO2 emission. For non-economic reforms, the empirical results have provided the evidence that higher CO2 emission is controlled by increasing forest land and forest investment. These findings have significant practical implications for policymakers to introduce economic and non-economic reforms simultaneously to overcome environmental degradation effectively.

Does rural labor outward migration reduce household forest investment? The experience of Jiangxi, China

This study examines the impact of rural labor outward migration, a prominent phenomenon in China, on household forest management using the appropriate economic theory and survey data of 500 households over seven years (2011–2017) in Jiangxi. We measured households' investment in forest management in terms of labor use and cash outlay. Considering the potential endogeneity of labor migration and periodicity of forestry, we built our Tobit models using the instrumental variable method, which was easily accommodated with our panel data. Our results indicated that households were more cautious on cash outlay in forest management, compared with their labor use, and that migration had an overall negative effect on both labor use and cash outlay. Further, migration of the household head and the number of migrants negatively influenced forest investment. The off-farm income positively affected labor use in forestry, while it negatively affected cash outlay. In addition, households with more labor, more forestland, and more forestry income invested more in forest management. Village factors, such as a larger population and better transportation, promoted households' investment in forest management. Our analysis provides important insights for policymakers to formulate and implement more pertinent policies to support rural forest management.

Investments in different taxonomies of goods: What should Nepal's community forest user groups prioritize?

Community forestry was initiated four decades ago in Nepal, with the aim of conserving forests and providing basic forest products to proximate households for subsistence use. Many resources were invested in improving the well-being of local communities, especially through the selling of forest products. However, there is limited knowledge of how this investment contributes to well-being. Following the concept of economic goods, this paper elucidates how community forest investment in different taxonomies of goods contributes to households' well-being. A statistically representative (n = 377) household survey was carried out in the Terai and mid-hills, representing different income groups (low, middle and affluent), along with focus group discussions and key informant interviews in two community forests. The data collection was supplemented with an analysis of community forest-user groups' records and their interactions with stakeholders. Two-stage statistical models were developed to explain the effect of the investment in different taxonomies of goods to household well-being, where economic factors were confounded in the first stage, followed by multinomial regression. Investment in private goods, especially in income and employment-generating activities, positively contributes to household well-being. In contrast, investment in public and common goods may not necessarily contribute to well-being, emphasizing the need to identify goods that positively contribute to the household well-being. We argue that appropriate policy reforms should be made to prioritize investment in private goods by the community forest user groups that maximize the contribution of community forestry to human well-being, especially that of low-income households.

Forest investment in the Russian part of the economic corridor China-Mongolia-Russia

The activity of foreign and joint ventures in the Russian part of the economic corridor is analysed. The enterprises with foreign capital play an insignificant role in the economy of the border regions now in comparison with the developed Siberian territories. Most of the foreign enterprises are registered by individuals, which reduces the innovation potential of investment and contributes to the import of labor. The main donor countries are China and Cyprus. The prevalence of Chinese investors is noted especially in the Zabaikalsky kraj where they dominate in most types of activities. Mongolia is the closest neighbor of this zone but its investors are represented in Buryatia only. Investments in wholesale trade and construction prevail with high concentration of production in coal and metal ore extraction. Such an industry structure hampers the flow of new technologies and the growth of human capital. Prospects for the growth of foreign investment are connected with the expansion of resource extraction including forest resources and their primary processing for export as well as the development of transition activities in the area of the expected economic corridor. It requires a purposeful state and regional policy of attracting investment into technological areas of communications and transport.

Transnational REDD+Rule Making: The Regulatory Landscape for REDD+ Implementation in Latin America

AbstractREDD+ – an incentive mechanism to reduce deforestation and associated greenhouse gas emissions in developing countries – was developed under the United Nations Framework Convention on Climate Change (UNFCCC) and subsequently included in the Paris Agreement. Its early implementation activities have highlighted the role of certain intergovernmental actors: REDD+financing initiatives, including the World Bank’s Forest Carbon Partnership Facility and Forest Investment Programme, and UN-REDD, a collaborative programme involving three agencies of the United Nations. By setting conditions for the provision of support for REDD+, these initiatives have actively and influentially engaged in REDD+rule making. This article focuses on the regulatory landscape for REDD+and examines rules developed under the UNFCCC and elaborated by the REDD+financing initiatives, using examples from the Latin American region. The analysis shows that informal lawmaking plays a more relevant role in REDD+rule making than international formal law, and has demonstrated legal and practical effects. However, informality can also tilt power relations between donor and recipient countries, which could jeopardize the legitimacy of transnational rule making.

Carbon sequestration or water yield? The effect of payments for ecosystem services on forest management decisions in Mediterranean forests

Abstract A decrease in net benefits from market-based forest products over the last three decades seems to be connected to the increasing abandonment of forestland in Mediterranean areas of Europe. In this paper, we estimate spatially distributed probabilities of continuing with forest management practices in mainly native pine and oak forests in Andalusia (southern Spain). The continuation of active forest management encompasses landowners' investment in operations that promote the recruitment of new individuals of the same species once a stand reaches its rotation age. On the contrary, abandoning forestry investment involves natural self-regeneration including tree densification, shrub encroachment and forest species replacement. We estimate the long-term effects of alternative scenarios of forest management on carbon sequestration and water provisioning services (blue water, i.e. surface discharge and ground water recharge). We examine the effect of payments for carbon sequestration, or alternatively for increasing blue water, on forest management decisions. Results are provided as spatially disaggregated values over different time frames up to 2100 and consider the sensitivity of forest investment decisions to a wide range of price levels and discounting rates.

Financial and risk analysis of African mahogany plantations in Brazil

ABSTRACT Wood demand is increasing in quality and quantity, and economic studies are fundamental to analyze the feasibility of forest projects. These researches are in line with management and silvicultural studies, highlighting growth and yield modeling. This paper proposes an economic evaluation of implementation of African mahogany stands in Brazil under different perspectives of forest management. Data are from plantations ranging from 1.1 to 15 years old in different Brazilian regions. Financial analysis was undertaken using Net Present Value (NPV), Internal Rate of Return (IRR) and Equal Annual Equivalent (EAE) for a 20-year period considering three thinning management regimes (A - unthinned, B - one thinning at age 10 years remaining 150 trees ha-1 and C - two thinnings, first at age 8 remaining 150 trees ha-1 and second at age 15 years remaining 75 trees ha-1) considering an initial density of 278 trees ha-1. A Monte Carlo simulation was performed considering six risk variables. Results showed that the discount rate is the variable that most influences the viability of the project. All site indexes in all management regimes lead to a feasible financial return, with NPV values ranging from 25,053 to 125,780 Brazilian reais per hectare, being regimes B and C the best ones. The probability for an unfeasible investment is almost zero, highlighting African mahogany as a great forest investment opportunity, providing high interest rates values (14% to 25%), superior to most available market rates of return.

Hedging with trees: Tail-hedge discounting of long-term forestry returns

Tail-hedge discounting is based on decomposition of returns from long-term investments in a fraction (gamma) that is correlated with consumption and another that is not. The first part is discounted at a discount rate that includes a risk premium, the other with the risk-free rate. We estimate gamma for forestry on Swedish data for stumpage prices and GDP per capita 1909–2012. We demonstrate that the result considerably changes the expected present value of medium-term and long-term forest investments.

Forest management decision making based on a real options approach: An application to a case in northeastern Argentina

AbstractThe Net Present Value (NPV) approach is widely applied to assess forest investments, but this method has serious shortcomings, which we propose to overcome by switching to the assessment through the Real Options Approach (ROA). The model in this paper starts with the simulation of the forest’s growth, combined with the projection of the products’ prices and valuing the assets using a binomial model. We include an option of postponement, determining the optimal period of felling. We find that ROA is more robust than the NPV approach because it relaxes the assumption of constancy of both the prices and the discount rate, allowing the determination of the optimal time of felling based on the growth rate of either the forest or the prices of its products. Contrary to the traditional NPV approach, the results obtained with ROA exhibit longer harvest turns and consequently higher profits. The key variable in the ROA, the Real Option Value (ROV) can be shown to be less (albeit moderately) sensitive to decreases of the discount rate than NPV. Moreover, ROV is moderately sensitive to decreases in the price of logs and is negligibly affected by rises in the costs of harvesting, loading and transporting rolls.

森林投資ファンドの展望-不動産投資やインフラ投資との比較を通じて-（論説）

森林投資ファンドの展望-不動産投資やインフラ投資との比較を通じて-（論説）