Economics Of Forest Management

by | Aug 12, 2023 | Conservation, Forest Management

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The study of the production, distribution, and consumption of forest goods and services is known as forest economics. It describes a decision maker’s mental calculation (whether a private landowner or a policymaker) by emphasizing the link between objectives and finite resources with many uses. Economics of forest management, in other terms, is the study of forest conservation and management decisions.

Forest economics deals with the financial aspects of buying, selling, and managing forest property utilized for water resources, wildlife, and other products. It also addresses the economics of forest product production, protection, harvesting, and commercialization.

The Economic Forces Behind Forest Management

The Economics of forest management is concerned with human and industrial resources associated with forest land to meet human needs. The study examines the cost and returns on various forest resources. Based on this information, forest owners calculate the return on their crops and decide whether to harvest their trees or keep the land growing.

Forest economics uses a variety of economic models to examine real-world supply and demand issues. Economic models are frequently used to explain or forecast events. The economics of forest management at the regional level assists farmers in making decisions regarding the harvesting, transportation, and sale of wood and wood products. Because the impact of most forest management actions is only apparent over a long period, recommendations for assessing the likely outcomes of such decisions are particularly valuable.

Forest economics is concerned with using economic techniques to analyze issues such as forest productivity, demand, and supply. The demand for forest products, according to a forest economist, is the functional connection between the quantities of a commodity or service that buyers are willing and able to acquire at different prices at different times.

Optimal Forest Rotation

The ideal rotation age in forestry is the growing period necessary to get the most value out of a stand of trees. This duration is calculated differently for each stand and the harvester’s economic and sustainability aims.

How To Calculate Optimal Forest Rotation

Isolating all expenses and revenues involved in identifying the rotation that will maximize the value of the wood-growing enterprise is the first stage in finding the rotation that will maximize the value of the wood-growing enterprise. The value of the timber generated represents the revenue. The value of standing timber is commonly stated as stumpage, which is the value of the timber less the expenses of logging and delivery to some utilization or transit center. As a result, it is the highest price a competitive logger will be prepared to pay for standing timber.

Second, as the stand’s total volume becomes older and larger, so does the value of the wood per unit (for example, per cubic foot). Utilization plants prefer larger timber over little timber because it may be converted into more profitable commodities. This is owing not just to log size limits but also to the fact that massive lumber tends to have greater technical qualities of various sorts.

Finally, within certain limits, harvesting and handling relatively large timber costs less per unit than harvesting and handling little timber. This feature tends to enhance the stumpage value of older stands as well because stumpage reflects the value of cut timber minus harvesting expenses.

In forestry rotation analysis, the economically optimal rotation is defined as “the age of rotation at which stumpage harvesting generates the highest income or economic output.” The choice of the best rotation age is made in an economically optimal forest rotation study by computing the largest net present value. It may be demonstrated as follows:

  • Revenue (R) = Volume × Price
  • Cost (C) = Cost of harvesting + handling
  • Hence, Profit = Revenue − Cost.

Cutting Cycles for An Uneven-Aged Stand

An uneven-aged stand in the economics of forest management is distinguished by the presence of three or more age groups at all times. Uneven-aged management refers to the practice of making decisions in order to fulfill ownership goals best while maintaining an uneven-aged structure.

The stand must never be clearcut in order to retain an unevenly aged structure. As a result, harvesting takes place either by selecting individual trees or by selecting groups of trees. When the intended species are shade sensitive and require bigger openings in order to reproduce successfully, group selection is usually used.

Cutting too frequently causes harvests with too little volume and hence higher harvest costs, while cutting too seldom lets the stand wander too far from the ideal diameter class distribution and, thus, higher harvest costs. The intended diameter class distribution will be determined by the cutting cycle used.

The stand density may be kept very close to an optimum for growth and regeneration with shorter cutting cycles. With longer cutting cycles, the stand density at the start of the cutting cycle will have to be lower to allow for more time before the stand gets too thick to regenerate.

Cutting cycles for an uneven-aged stand should seldom be a management goal in and of itself. Rather, this structure is preserved because it is thought to be the most effective means of achieving some ownership goals. Maintaining steady forest cover, collecting more frequent revenue from the stand, providing a certain sort of animal habitat or a specific collection of plant communities, or demonstrating or studying uneven-aged management approaches are some of these purposes.

Also Read: Economics of Uneven aged Management

The Hartman Rotation Age

The value of non-timber advantages has no well-defined connection with the stock’s age. When the forest is well-established, the value of non-timber advantages such as watershed function, scenic amenities, fruits, flowers, mushrooms, and so on is highest, and when the forest is clear-felled, the value is lowest.

The grazing advantage of a forest site, on the other hand, decreases as the age of the tree grows. Hartman’s” rotation age provides the answer to the maximization problem when the nonmarket value of exterior or amenity benefit is included.

According to the Hartman approach

The harvest age should be determined when the marginal present value of postponing harvest, or marginal benefit of delay [MBD = g(T) + pv’ (T)], equals the marginal opportunity cost of delay [MOC = RPV(T) + RM],

where g(T) represents the forest’s flow of non-timber values as a function of its age.

pv(T) is the timber value at the end of the rotation after harvesting expenses are deducted, and

c is the planting cost.

The equality of MBD and MOC assures that the first-order requirement t, or maximization, is satisfied. However, the presence of non-convexity in the present value function is required for the second-order criterion to be met. Non-convexity makes it possible for a myopic policymaker to miss the global optimum.

Market Solutions and Limitations

Technical information for developing sustainable forest management techniques is accessible, and global forest product markets are not a major impediment to achieving sustainable forest management goals; in fact, they provide a variety of options. However, particularly in tropical forests, sustainable forest management is not generally practiced. This happens because markets do not support long-term forest management.

Furthermore, market failings are frequently compounded by governmental and institutional shortcomings, making sustainable forest management even more unappealing. Some of these failings are being addressed through new programs such as “model forests,” forest product certification, and the establishment of standards and indicators for sustainable forest management, but there is still a long way to go.

When markets fail, governments often devise and execute policies to either restrict production or create markets for some of the externalities.

The inappropriate pricing of forest products is a big issue in many nations. Standing Roundwood is often priced far cheaper than it would be in a competitive market under such policies, which are frequently imposed with the goal of promoting the forestry sector’s development. Pricing rules are frequently badly conceived, both in terms of structure and the number of charges imposed, and are not always strictly implemented.


New Approaches To Forest Regulation

Several innovative techniques trying to improve forest management have been identified:

Legal Innovation

To strengthen the legal framework, to develop new scientific instruments for the drafting of regulatory legislation for both general civil law provisions and forestry laws in particular;

Technological Innovative Approach

To apply the most recent technical innovations in forest resource management, such as new forest management activities aimed at developing new technology, integrated methods, and technological methods; technology that contributes to the improvement of such processes. Here, innovations indicate goods and innovations that contribute to the end result of forest management, i.e., products and innovations that improve the forest management process or the output or the perfection of production processes.

Economic Innovation Approach

Create new economic mechanisms for effective and sensible forest exploitation and management using an economic innovation approach.

Organizational and Managerial Innovation Approach

Search for innovative forestry and forest management mechanisms; enhance the reproduction and exploitation of forests based on the principles of consistency and sustainability; reform existing techniques and develop new activities, methodologies, and economic instruments for use in forest management.

Long-Term Trends in The Forest Sector

Forest Trends is on the lookout for innovative ways to make markets and finance work for forests rather than against them and to reorient our economy toward valuing forests and all of their co-benefits correctly. We accomplish this by creating and promoting innovative solutions that unlock public and private money at the scale required to reverse deforestation and make a compelling argument for why forests are worth more alive than dead.

Forest Trends is working to build market solutions and new policy solutions that safeguard our forests, soils, water, and wildlife while also benefiting conservation.

Forest Trends works to conserve forests by implementing the following strategies:

  • Providing high-quality research on deforestation in important tropical forest nations in Africa, Asia, and Latin America, where it is most severe.
  • Assisting indigenous and traditional groups in securing their rights, conserving their forests, and improving their livelihoods and territorial government. These communities play a critical role in the worldwide fight against climate change and the preservation of the world’s remaining forests.
  • Developing new policy solutions for governments and companies in consumer nations to address the demand that promotes forest loss.
  • Working to protect forests and reduce greenhouse gas emissions, promote legal and sustainable forest commerce, and defend the rights of indigenous tribes and other traditional forest stewards throughout the public and private financing spectrum.

Conceptual Model for Silvicultural Investment

One of the most important aspects determining the future viability of forests is the forest management model. The conceptual model for silvicultural investment based on the root definition result was then identified to acquire a series of activity processes in the production forest silvicultural system.

The conceptual model may be characterized as a description of the link between various activities and the function of the players in the system in achieving their common objectives.

Intensive management operations centered on enhanced commodity production, especially wood, have dominated the development of forestry as a scientific and management discipline over the previous two centuries. This “traditional” forest management strategy has encouraged the development of even-aged, single-species stands.

While alternative management regimes have gotten less attention in the past three decades, this has begun to change, particularly in developed economies. New information and worries about the ecological effects of intense forestry methods, as well as a willingness on the part of many forest owners and society to adopt a broader range of management objectives, have all contributed to this shift.

Avoidance of clearcutting, an emphasis on structural variety and small-scale variability, deployment of mixed species with natural regeneration, and avoidance of intensive site-preparation procedures are all characteristics of alternative silvicultural practice.

Also Read: Introduction To Forest Management


  • Dr. Emily Greenfield

    Dr. Emily Greenfield is a highly accomplished environmentalist with over 30 years of experience in writing, reviewing, and publishing content on various environmental topics. Hailing from the United States, she has dedicated her career to raising awareness about environmental issues and promoting sustainable practices.

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