Loss In Net Present Value Research Articles

Estimated economic impact of fire blight on long-term orchard economic performance with susceptible and resistant rootstocks

We estimated the economic impact of theoretical fire blight induced tree loss using data from two long-term field trials in NY State. An economic analysis of profitability using Net Present Value (NPV) was conducted with three cultivars, eleven rootstocks and four planting systems. The impact of fire blight was modeled in terms of both the severity of the disease and the year of infection. We considered a range of scenarios with different infection rates (10 %, 50 %, 80 % and 100 %) of all the trees planted and different timings when the infection took place including the 1st year (prior to production), 5th year, 10th year and the 15th year during the life cycle of an orchard. The analysis showed that the smallest impact of fire blight induced losses on lifetime NPV occurred when the fire blight infection and tree death occurred in year 1 and was greatest when infection and tree death occurred in year 10. If the infection occurred in year 15 then the losses in NPV were less. As expected, the analysis showed that a low percentage of tree loss due to fire blight at any given year of the orchard life resulted in a low impact on lifetime NPV while greater levels of infection and tree loss were associated with higher losses in NPV. The use of fire blight resistant rootstocks dramatically reduced the negative impact of fire blight induced tree losses on NPV. With susceptible rootstocks (M.9 and M.26), the reduction in NPV with high levels of tree infection was as high as 70 % which would render the planting unprofitable, while with resistant rootstocks the losses in NPV were lower (<30 %) and the orchard would still be profitable. High-density orchard systems like the Tall Spindle system had less sensitivity to fire blight induced losses than lower density systems. Cultivar also had an important effect on the level of fire blight induced losses of NPV. With a high priced cultivar like ‘Honeycrisp’ the percentage loss in NPV was less than with the lower priced cultivars like ‘Fuji’ and ‘Gala’.

Robust management strategies promoting ecological resilience and economic efficiency of a mixed conifer-broadleaf forest in Southwest Germany under the risk of severe drought

Robust decision-making in forestry seeks solutions that reduce the risk of environmental damage and economic losses, which matters for designing forest adaptation measures. We propose a state-of-the-art methodology to identify robust drought adaptive strategies. First, we used a process-based model with an ensemble of climate change scenarios to simulate managed forest dynamics. Second, we quantified the ecological resilience and financial return as net present value (NPV), applying business-as-usual (BAU) and alternative adaptation strategies to regenerate the overstorey layer (trees ≥ 30 cm dbh) of the forest (e.g., “active”, “reactive”, and “do-nothing”). Afterward, we analyzed robustness by searching for the strategy with minimum worst-case losses of ecological and economic signposts. Our analysis found a reduced forest drought resilience under BAU and “do-nothing” strategies, determining a high probability of economic failure (∼ −49% and ∼ −67% loss in NPV respectively). While, an early “active” strategy would increase the NPV (∼ +10%), and a highly-intense “reactive” strategy would have minimal losses (∼ −2%). Finally, we found that local conditions influence the signpost performance magnitude but do not vary the robust solution. We conclude that our methodology facilitates applying a robustness analysis in forestry, and drought adaptation should occur rather sooner than later, considering constant revision.

Productivity loss and cost of bovine tuberculosis for the dairy livestock sector in Ethiopia

Bovine tuberculosis (BTB) is endemic in Ethiopia. Although upgraded dairy cattle account for only 1% of the total cattle population, they are the backbone of the marketed milk production in the country. Supported by research data outputs from three years, we report in this paper an estimate of the productivity loss and cost of BTB to the Ethiopian dairy sector in two dairy settings, the urban production system in Central Ethiopia (model 1) and the national upgraded dairy production (model 2). Primary data sources were used (e.g. market survey; three-year longitudinal productivity survey; abattoir survey) as well as secondary data sources. A matrix population model, composed of a population vector representing the herd composition that is repeatedly multiplied with a projection matrix, was developed to simulate the livestock dairy population. The initial herd structure was simulated over 30 years to obtain an equilibrium herd-structure representing an Eigenvector of the projection matrix. We performed an incremental cost of disease analysis by comparing livestock production with and without BTB during a period of 10 years. We assumed a BTB prevalence of 40%. In year ten, the Net present value (NPV) of livestock production in terms of milk, meat and hides was estimated at 154.5 million USD for model 1 and 1.7 billion USD for model 2. Loss of NPV over 10 years was estimated at 12 million USD for model 1 and 131.7 million USD for model 2, representing roughly 7.3% loss in NPV or 219 USD per animal. This is a benchmark against which a national TB control program could be developed in the future to calculate its benefit/cost ratio.

Dynamic treatment units in forest planning using cell proximity

In forest management planning, the dynamic treatment unit (DTU) approach has become an increasingly relevant alternative to the traditional planning approach using fixed stands, due to improved remote sensing techniques and optimization procedures, with the potential for the higher goal fulfillment of forest activities. For the DTU approach, the traditional concept of fixed stands is disregarded, and forest data are kept in units with a high spatial resolution. Forest operations are planned by clustering cells to form treatment units for harvest operations. This paper presents a new model with an exact optimization technique for forming DTUs in forest planning. In comparison with most previous models, this model aims for increased flexibility by modelling the spatial dimension according to cell proximity rather than immediate adjacency. The model is evaluated using a case study with harvest flow constraints for a forest estate in southern Sweden, represented by 3587 cells. The parameter settings differed between cases, resulting in varying degrees of clustered DTUs, which caused relative net present value losses of up to 4.3%. The case without clustering had the lowest net present value when considering entry costs. The solution times varied between 2.2 s and 42 min 6 s and grew rapidly with increasing problem size.

A Quantitative Approach To Analyze Fracture-Area Loss in Shale Gas Wells During Field Development and Restimulation

Summary The economic development of shale gas fields requires the reservoir volume to be stimulated by use of multiple hydraulic-fracture stages along the horizontal wellbore. To optimize the gas reserves, the stimulated reservoir volume needs to be maximized; this requires that offset wells be placed as close to the nearby wells as the fracture-stage lengths will allow. When offset or infill wells are drilled adjacent to existing wells, the new well's hydraulic fractures can interfere with or intersect the existing well's fractures; this reduces the existing well's production rate. This apparent fracture-area-loss event has been called a “frac hit(s)”. For various reasons, the operator may need to evaluate the economic impact of the frac hit(s) on the offset well. Likewise, the operator may need to evaluate the refracturing [refract(s)] of a well caused by providing an additional stimulation treatment to a well that should increase the well's gas-production performance. The presented analysis technique applies to either case. A single well-analysis technique that quickly determines the economic impact of frac hit(s) or refrac(s) is presented. Sufficient production data before and after the frac hit or refrac need to be gathered to establish the internal linear transient flow periods on an inverse productivity-index (PI) vs. square-root-of-time plot. This rate-transient-analysis (RTA) technique has a straight line during the early portion of the data after well storage and well cleanup, which indicates an internal linear transient flow period for the prefrac-hit/prerefrac-hit and post-frac-hit/post-refrac data sets. These straight lines ensure that one can apply the RTA to provide the PI and, thus, the effective fracture areas, Af1 and Af2 or the before and after data sets, as is explained. To verify the accuracy of the RTA results for the fracture-area reduction/gain, a numerical model is made with the known wellbore, fracture stage, and fluid-properties information, and a pressure history match is performed on the prefrac-hit data with historical production data to constrain well-production rates along with the fracture length that provide the determined effective fracture area. By use of the Af1 and Af2 values from the RTA analysis, a pressure match is achieved for the before and after frac-hit data. This verifies that the analytic RTA model provides good results for the fracture-area change caused by the frac hit. One can forecast either a stochastic analytic model (Miller et al. 2010; Miller 2014) or the history-matched numerical model for several years with the field-operating conditions. With this matched model, one can add the post-frac-hit data, and one can achieve a pressure history match by adjusting the effective fracture area. One also can forecast this history-matched model for several years, and one can use the prefrac-hit and post-frac-hit/refrac forecast results to estimate the financial impact of the frac hit/refrac. The single-well-analysis work flow is demonstrated with smoothed data that are based on a real frac-hit well. This simplifies the work-flow demonstration. A sensitivity analysis was run to determine the effect of reservoir permeability on a frac hit. The results show that it has a very large impact at low permeability (&amp;lt;25 nd). At 10 nd, a percentage loss of net present value (NPV) is the same as a percentage loss of fracture area (i.e., a 75% loss in frac area will give approximately a 75% loss in NPV). At high reservoir permeabilities (&amp;gt;100 nd), the impact of a frac hit is tempered because of more flow from the matrix. It is shown that fracture geometry (variation in the fracture-stage lengths) does not greatly affect the results to determine the fracture-area reduction caused by a frac hit. A huge benefit of following the suggested work flow is that the RTA results provide limiting estimates of the reservoir permeability and fracture area that will save significant time history matching the prefrac-hit- and post-frac-hit data sets.

Impact of Swiss Needle-Cast on Growth of Douglas-Fir

Phaeocryptopus gaeumannii, the cause of Swiss needle-cast, is widely distributed in plantations of Douglas-fir in many parts of the world. Nevertheless, information remains limited on its precise effect on stand growth, particularly in relation to regional climate, and on its consequent economic cost. In New Zealand, the spread of P. gaeumannii over a period of ≈30 years following its discovery in 1959 was closely monitored, and the timing of its arrival in different forests is known. This information was coupled with data from permanent sample plots in order to quantify the associated historical growth increment loss. Analyses revealed a steady decline in growth rate over the period from the first appearance of P. gaeumannii to a point when it stabilized at a lower increment level 14 to 20 years later. The cumulative mean reduction was 25% for mean top height, 27% for basal area, and 32% for stem volume. Volume growth rate decline was greater in the North Island (35%) than the South Island (23%) of New Zealand. These reductions in volume growth are estimated to equate to a loss in net present value of $NZ2,620 ha(-1) and $NZ1,470 ha(-1) for the North and South Islands, respectively, using a discount rate of 6%. Mortality did not increase as a result of infection by P. gaeumannii. The disease had less effect on cooler sites, especially those with low spring minimum temperatures (P < 0.001). Negligible growth decline occurred on sites with daily minimum October temperatures averaging <3.2°C.

Optimizing spatial habitat suitability and timber revenue in long-term forest planning

Effective tools must be developed that include consideration of biodiversity in the traditional forest planning process. The objective of this study is to present a spatial habitat suitability model that could be included in the optimization of long-term forest planning where the problem can be solved with an exact solution method. This could be an advantage, since, e.g., many forest planning systems available today are designed for problems that could be solved with an exact solution method. The habitat model consists of two parts: suitability assessment of stand-wise conditions and spatial conditions. To investigate whether the model works in a realistic setting, we used a case study and applied the model to the habitat demands for Hazel Grouse ( Bonasa bonasia L.). The results from the case study indicate that the model is effective for including spatial habitat consideration and that the model could be used for creating different degrees of the clustering of habitats. Further, the loss in net present value as a result of the spatial habitat demands was limited in the case study. We suggest that this modeling approach could be extended to other species with large area requirements and add to the existing tools for forest biodiversity assessment in forest management planning.

Ice damage and forest stand management

Large-scale economic losses from ice glaze and freezing precipitation, common among pine plantations in the many parts of the eastern United States, serve to retard non-industrial private landowner investments in forest land. We examine the consequences of ice storms to private forest management by incorporating ice damage into a Faustmann-based landowner decision simulation, in which the landowner chooses rotation age, timing and intensity of thinning, and planting density to maximize land value. These and other site factors determine tree damage should an ice storm arrive before rotation age. A simulation is conducted for loblolly pine using an individual tree growth and yield model, and optimal management regimes are determined under a range of discount rates, site productivity classes, and storm arrival dates. Unlike some Faustmann-based models of catastrophic events, empirical damage functions are employed to adjust tree growth forward to the rotation age in periods after ice arrives or a thinning has taken place. Damage depends on pre-storm tree characteristics and is endogenous relative to stand management decisions. Results show net present value losses ranging between 4.72% and 21.77% for ice-damaged stands, compared with undamaged stands. Surprisingly, when comparing myopic landowner decisions that do not account for ice damage to decisions made with perfect foresight, we find that in many cases stand management may be best left unaltered when destructive ice storms are considered. The ice-mitigating management strategies in the majority of scenarios were identical or close to those strategies that did not take potential ice damage into account. Further, even where ice-mitigating decisions are found to differ from decisions that do not account for ice damage, in almost all cases we show that stand management should simply be adjusted after occurrence of a storm, likely a consequence of our stands not being completely destroyed in ice events. This differs from some previous Faustmann-based models of catastrophic risk where it is assumed that a new rotation is started immediately after a damaging event arrives. Finally, the potential gains from managing stands to mitigate ice damage are often smaller than the potential losses that occur when storms fail to materialize.

Incorporating aspects of habitat fragmentation into long-term forest planning using mixed integer programming

In forest planning, an understanding of the spatial relationships between compartments has become an increasingly important issue. Effective approaches must, therefore, be developed that include consideration of spatial relationships in planning models. Existing approaches, based on numerical optimization, tend to lack the means effectively to include spatial considerations. Further, many suggested approaches have focused on ways to include adjacency constraints or green-up constraints in forest planning. However, in order to maintain the biodiversity in the forest, methods dealing with, for instance, the problem of fragmentation of old forests, also have to be developed. In this paper, the issue of fragmentation is addressed and incorporated into long-term forest planning. The approach is to attempt to minimize the outer perimeter of areas of old forest. The model presented is formulated on the basis of mixed integer programming, and solved with a branch and bound algorithm. A data set consisting of 924 stands was used to examine the model, which was then evaluated with different requirements for the degree of clustering. The results indicate that the model is effective for the clustering of old forest stands and that it can be solved within a reasonable time despite the large number of constraints and variables. In the case study the loss in net present value as a result of including the issue of fragmentation was a few percent.

Comparing stand inventories for large areas based on photo-interpretation and laser scanning by means of cost-plus-loss analyses

Evaluations of inventory methods usually end when precision and bias are quantified. Additional information on the appropriateness of a method may be provided through cost-plus-loss analyses, where the total costs are calculated as the sum of net present value (NPV) losses, i.e. expected economic losses as a result of future incorrect decisions due to errors in measurements, and inventory costs. The aim of the study was to compare inventories of basal area, dominant height and number of trees per hectare based on photo-interpretation and laser scanning from two sites in Norway by means of cost-plus-loss analyses. In general, more precise estimates were found for laser scanning than for photo-interpretation, while the biases were about equally distributed between the two methods. On average for the two sites, the inventory costs, NPV losses and total costs for photo-interpretation were about 6, 49 and 54 euros ha−1, respectively, while they were 11, 13 and 25 euros ha−1 for laser scanning. The data used for the comparison were limited to two sites and 77 stands, and certain simplifying assumptions were made in the cost-plus-loss analyses. Still, there is reason to believe that the results of the study are of general validity with respect to the main conclusion when comparing the two methods.

Effects of Inbreeding on Production and Survival in Jerseys

Responses of registered Jersey cows to various levels of inbreeding were examined with pedigree data supplied by the American Jersey Cattle Association and test-day production data from 1970 through 1998 obtained from the Animal Breeding Center at Cornell University. Rate of increase in level of inbreeding is accelerating with time, making it more difficult for producers to make matings that avoid the potentially deleterious effects of inbreeding. Production losses caused by inbreeding were significant and curvilinear for all traits studied except somatic cell linear score, with the greatest losses at higher levels of inbreeding. Inbreeding was found to have the greatest effect on production at early ages and early in lactation. Early onset of the deleterious effects of inbreeding resulted in larger net present value losses than if effects of inbreeding occurred later in the life of an animal. Losses were probably enhanced because of the need to freshen animals as early as possible to maximize net present value returns. Survival decreased as level of inbreeding increased and was likely to have a greater negative impact on the financial health of the dairy enterprise than production losses.

Effects of Inbreeding on Production and Survival in Holsteins

Responses of registered Holstein cows to various levels of inbreeding were examined with pedigree data supplied by the Holstein Association USA and test-day production data from 1970 through 1998 obtained from the Animal Breeding Center at Cornell University. Rate of increase in level of inbreeding has been accelerating over time, making it more difficult for producers to make matings that avoid the potentially deleterious effects of inbreeding. Milk production losses per lactation caused by inbreeding were generally 35kg per percentage inbreeding level >0.01 but increased to 55kg per percentage inbreeding level from 0.07 to 0.10. Somatic cell score was not affected by level of inbreeding. Inbreeding had the greatest effect on production at ages <22 mo and early in lactation. Early onset of the deleterious effects of inbreeding resulted in larger net present value losses than when effects of inbreeding occurred later. Losses were likely enhanced due to the need to freshen animals as early as possible to maximize net present value returns. Survival decreased as level of inbreeding increased and was likely to have a greater negative impact on the financial health of the dairy enterprise than production losses.