On the effect of volatile stumpage prices on the economic attractiveness of a silvicultural transformation strategy

This paper evaluates the economic attractiveness of a silvicultural transformation strategy, focussing on risk, as a result of the volatility of stumpage prices. Based on a situation of a 58-year-old spruce stand [Picea abies (L.) Karst.], which can be found near Freising (Upper Bavaria, Germany), a growth model (SILVA 2.2) was used to project the stand development. Growth simulations were conducted for a specific transformation strategy, from regular to irregular age structure on the one hand, and for a conservative silvicultural strategy (thinning, clear-cut, reforestation), on the other hand. The transformation strategy was aimed at achieving an uneven-aged stand structure. It was based on early initiation, small-scale regeneration cuts carried out frequently and periodically. The harvests were, therefore, more evenly distributed over the time period analysed. Unlike transformation, even-aged silviculture consisted of relatively strong thinning up to age 68, followed by weak or no interventions up to age 98, the rotation age, aiming to maximise mean value increment. Both strategies were modelled over a time period of 198 years. Based on the growth data, a Monte Carlo model was used to estimate the financial results of both strategies. The stumpage price was assumed as a random variable with a probability density which follows a normal distribution. From the results of 1000 simulations for each strategy, distributions of the net present value (NPV) were calculated. Due to the complexity of the growth model SILVA, the calculations, being valid not for a forest enterprise but for one single stand, were restricted so that the time for every intervention was fixed, regardless of the stumpage price. Since the revenues produced by transformation were more evenly distributed over time than those achieved by the conservative even-aged strategy, the latter was far more influenced by very low or very high prices at the time of the clear-cuts. This fact caused a much smaller variation in NPV of the transformation. Parallel to this result, the probability of producing a deficit (that is to achieve a negative NPV) was lower for the transformation. The financial effect shown in this study in favour of transformation certainly compensates for a potentially higher risk of storm damage during the transformation treatment.