Investment uncertainty analysis in eucalyptus bole biomass production in Brazil

Abstract

Forestry investment projects for the biomass production of the eucalyptus bole can be characterized by uncertain environments, which result in economic risk to the forest producer, however that can be measured by applying probabilistic techniques. This was our motivation and justification for analyzing the economic-financial viability of different silvicultural practices for eucalyptus bole biomass production under conditions of uncertainties, running Monte Carlo method for risk management. The experiment was carried out in the state of São Paulo, Brazil, using 5 treatments with spacings of 3 m × 2 m; 3 m × 1 m; 1.5 m × 2 m; 3 m × 0.5 m; and 1.5 m × 1.0 m, i.e., different spacings between planting lines and plants. These treatments were characterized as investment projects. To develop stochastic models, we relied on technical-economic deterministic variables. We evaluated the investment projects based on the cash flows under conditions of uncertainty, discounted at the attractiveness rate calculated by capital asset pricing model. With the results of these economic flows, the net present value, the modified internal rate of return and the profitability index values were estimated, commonly used in the analysis of investments in projects. The results showed that based on economic metrics, the three-year rotation cycle for forest stands for biomass production of the main bole of eucalyptus, with a spacing of three meters between rows and two meters between plants, had an 83% probability of economic success. The sensitivity analysis showed that the bole biomass of eucalyptus is the most important variable for determining the economic-financial feasibility of the investment project.