A comparative economic evaluation of different regimes

NZDFI has developed growth models for selected species based on permanent sample plots in our trial network. This has enabled us to model outputs from three of our different proposed growing regimes, and make a comparative economic appraisal of the three regimes.

The approach taken

The approach used to evaluate a conventional radiata pine forestry investment is to discount cashflows to calculate a Net Present Value (NPV) and a projected internal rate of return (IRR) over a rotation. This technique relies on well-established regional radiata pine growth models, plus good long-run market information (log prices).

In the case of durable eucalypts, we have only limited growth models and it is too soon for any market information to be available, so we have taken an alternative approach. We have calculated the required stumpage values per cubic metre (i.e. net returns at harvest) to achieve an 8% internal rate of return (IRR) for each growing scenario.

Evaluation of three NZDFI regimes

The potential economic feasibility of three NZDFI regimes has been evaluated:

(i) peeler poles – 15-25 year rotation (depending on site type)

(ii) peeler/sawlogs – 30-40 year rotation

(iii) permanent forest – no harvest involved.

Data from NZDFI trials on a high and a low productivity site have been used to model potential productivity (total recoverable volumes and average piece size over time) under each regime for both sites. See our Strategic Plan (Section 5) for more details of these parameters under different scenarios.

The economic feasibility for high and low productivity scenarios for each of the three regimes is shown in the table below.

Stumpage values were calculated by estimating forest growing costs against the total recoverable volume predicted by the models across a range of harvest ages.

The table also shows the significant effect of an establishment grant (in this case the now closed Te Uru Rākau ‘One Billion Trees’  grant) on long-term economic outcomes.

More economic information

Our Strategy document (Focus Area 2) contains further details of economic models we have developed, including a projected comparison of returns between a high productivity and a low productivity site.

Growers seeking information on the costs (and early returns from carbon) of growing durable eucalypts should consult with a forestry adviser.