Threshold values for profitable tree breeding in Finland, society’s, private forest owner’s and seed producer’s viewpoints So-called practical tree breeding* via seed orchards government subsidy private forest owners (demanding the orchard seed) orchard seed producers direct relation between the activity and agent direct interaction between agents *Practical in the sense that basic research (incl. e.g. provenance testing) was excluded from the assessments Practical tree breeding covers app % of the annual subsidy directed into tree breeding in Finland A MULTILEVEL ANALYSIS

Main variables to be examined for each agent: government *Discount rate ( under which the net present value, NPV is positive ) *Annual regeneration area *Genetic gain *establishment area for the next-generation seed orchards *Stumpage prices A MULTILEVEL ANALYSIS – can the profitability conditions be met simultaneously by each agent ? private forest owner *Discount rate * Sowing cost difference (FIM/ha) between orchard and stand seed *Genetic gain * Stumpage prices seed producer * Discount rate *Establishment costs *Annual management costs * collecting costs of the cones * average annual seed crop * selling price of the orchard seed * production age

Theoretical framework Economic analyses (society) cost-benefit analysis, CBA a specific shadow pricing procedure * A general profitability formula with NPV set as decision criterion where: Factor Description B diff Differential benefits: genetic gains are assumed to gene­rate faster growth rate resulting in higher present value of the outturns when compared to natural stands C es Establishment costs of the seed orchards are considered to be differential costs as such due to the absence of any corresponding activity related to natural stand seed ac­quisition C diff Differential costs can be divided into progeny testing, annual management and administration Discount factor with per cent p t 1, t 2, t 3 parameters reflecting different time spots (Note that t 1  t 2  t 3  T 1  T 2  T 3 ) Cost data: annual book-keepings (between ) of the former Foundation for Forest Tree Breeding and the Forest and Park Service

Theoretical framework Financial analysis (private forest owner) * According to neo-classical economics: utility maximization by maximizing net benefit * A specific formula with profitability criterion set to NPV: π tb = net benefit, FIM/hectare JT t =financial value, FIM/ha (assessed by using trend stumpage price as a unit of measure) of a thinning or final cut in an improved stand NS n = financial valueof a thinning or final cut in a normal stand without genetic gains D p = discount factor t 1 = time (in years) of the first commercial thinning in an improved stand n 1 = time of the first commercial thinning in a natural stand tt= time of the final cut in an improved stand nn= time of the final cut in a natural stand C g (S)= initial sowing cost (FIM/ha) when using orchard seed C 0 (S)= initial sowing cost (FIM/ha) when using stand seed Financial analysis (seed producer) * Profitability conditions for a single firm:,, where P sf = profitability for a single firm q = labour input x = other inputs used in production f(q,x)= production function p= price for orchard seed produced according to f(  ) c, z= given prices for inputs q and x, respectively * The main focus was to examine the overall conditions for positive P, and to estimate whether there are possible economies to scale still to be exploited ( at present generation ) Cost data: direct production costs (incl. e.g. cone collection, transportation, extraction costs) between (Scots pine), and (Silver birch) totally over 700 cost observations for Scots pine and over 150 for Silver birch

Conclusions – present generation, Scots pine seed orchards Society: 3 % discount rate 8 % genetic gain ha annual cultivation area ( incl. direct sowing and planting area ) Generates the following environment (i.e. through financing) for orchard seed production Seed producer: Prevailing threshold values for each variable are attainable, provided that the government subsidizes the years from the establishment to the first seed crop ( establishment and annual management) Private forest owner: Especially in southern Finland direct sowing with Scots pine orchard seed was profitable with eight per cent discount rate and seven per cent genetic gain, or with five per cent discount rate and three per cent genetic gain (in the latter, sowing cost difference can be as much as FIM 500/ha) Through government subsidy orchard seed production enables: attainable Southern, central and northern Finland

Conclusions – next generation, Scots pine seed orchards Society: 5% discount rate 8% genetic gain ha annual cultivation area 500 ha of seed orchards to be established Seed producer: E.g. lowest average seed crop (6 kg/ha/year), collection costs of FIM 10 and discount rate between six 1 and eight per cent resulted in a positive NPV, provided that government subsidizes the early years (b) Private forest owner Even better profitability than in the present generation due to the higher obtainable genetic gains, provided that the sowing cost difference (between orchard and stand seed) does not increase faster than anticipated attainable (with low risk) [Low risk element refers to the results of sensitivity analyses] Southern and central Finland (1 in real terms)

Conclusions – Silver birch, present generation Society: 3 % discount rate 15% (South), 12% (Central Finland) genetic gain 1700 ha annual cultivation area Seed producer: market demand clearly exceeds the long-run average costs, LAC  very profitable production Private forest owner: not relevant due to the fact that no genuine decision between orchard and stand seed Conclusions – Silver birch, next generation Society: 4 % discount rate 15% (South), 12% (Central Finland) genetic gain ha annual cultivation area Seed producer: profitable seed production attainable even without government subsidy Private forest owner: The same as with present generation attainable Southern and central Finland

P.S The original thesis can be copied ( an electronic version, PDF file of 1.52 MB ) from: ”  ”väitöskirjat – Doctoral dissertations”  ” Ahtikoski, Anssi. The profitability of Scots pine (Pinus sylvestris L.) and Silver birch (Betula pendula Roth) next-generation seed orchards in Finland”