Applied Forest Economy Lennart Eriksson

Co-operation partners Prof Nikolay Moiseev, MSFU Prof Galina Filyushkina, ARICEF Dr Per Hazell, Swedish Forest Agency Prof Lennart Eriksson, Swedish University of Agricultural Sciences

Applied Forest Economy THEORY OF FOREST ECONOMY and FORESTRY APPLICATIONS

Development of the course Discussion in Sweden of alternatives for the course Presentation for a planning group in Moscow of a structure and of examples of the content of the course

Development of the course (cont) Presentation for lecturers of a developed content of the course expanded with economic analyses and combined with studies of applications in the forest Development of material from studies and analyses for presentations and production of a verbal description of the theory with applications

Useful wood is produced by: Stand establishment Tending of stand Cleaning Pruning? Thinning Fertilizing Wounding up the matured stand New stand establishment

An uncleaned stand with stems of wrong species, too many stems and damaged and dying trees

A managed stand after first thinning

Silviculture - investment desicions with limited resources Normal profit should be required Regard for time aspect of costs and revenues (net present value) Use of relevant rate of interest (reduction for taxes on external investments) Correction of the rate of interest by inflation (real rate of interest) Desicions under risk Calculation gives better allocation of limited resources

The rate of interest The basis for the rate of interest is given by the financial situation of the company/the owner of the forest For practical reasons – correction for inflation Tax correction since no taxes are applied on annual growth in the forest Risk should not be regarded in the rate of interest, rather directly on revenues and costs

The rate of interest, calculation example A nominal rate of interest in a bank account of say 10 percent is transformed into a rate of interest after taxation (30%) like the following: Rate of interest after taxation: 10*0.7=7% A correction for inflation of say 5% gives: (1+r/100)=(1+7/100)/(1+5/100)≈1.019 r≈1,9%

The diameter effect

Production cost at saw mill

Optimal age of cut Economical growth Expected rate of interest Opt. age of cut Stumpage value Surplus value Ground value Loss of capital Time, years Value, SEK

The ground value The present value per hectare of all future net incomes Important for: –A relevant choise of stands for clear cut –An efficient allocation of resources at stand etablishment –A good basis for evaluation of ground for purchase

Fertilizing Very profitable –Almoast matured stands are the most profitable –Dense stands with high wood quality –Proper tree species –Not very low site index class < 3 m 3 /ha/yr –Not very high site index class > 10 m 3 /ha/yr 2-3 repeated treatments may be profitable

Adaptation to local conditions Use the natural regeneration when possible (must be combined with cleaning) Location close to end user motivates to a more intensive forest management (higher level of investment) Location far from end user motivates to production of high graded round wood and of more processed products (i.e. IKEA’s dence packed furniture) High investment level on good sites

System maintenance Repeated meetings for discussions and calculation exercises Building up of a question/answer box by means of internet Develop type analyses for different situations in Russian forestry Educate ”missionaires” distributing the economic way of thinking in forestry

Continued co-operation Employ guest lecturers Exchange material for lectures Financiation by means of governmental subsidies Financiation by means of involved companies

Continued co-operation (cont) Distribute schedules for seminar series between faculties of forestry Exchange of students between faculties Use of foreign opponents at dissertations Recruiting people from other countries for employment