Modelling Financially Optimal Afforestation and Forest Management Scenarios Using a Bio-Economic Model

Abstract

The\rexpansion of non-industrial private forests (NIPF) in Ireland is unique in the\rEuropean context in which the almost doubling of forest cover within the last\rthirty years has taken place largely on farmland. This is not surprising as\rIreland has some of the highest growth rates for conifers in Europe and also\rhas a large proportion of land which is marginal for agriculture but highly\rproductive under forests. However, in recent years, afforestation in Ireland as\rin many European countries has fallen well short of policy targets. As the farm\rafforestation decision essentially involves an inter-temporal land use change,\rfarmers need comprehensive information on forest market returns under different\renvironmental conditions and forest management regimes. This paper describes\rthe systematic development of a cohort forest bio-economic model which examines\rfinancially optimal afforestation and management choices. Simulating a range of\rproductivity and harvesting scenarios for Sitka spruce, we find that different\robjectives result in different outcomes. We see substantial differences between\rthe biologically optimal rotation, the reduced rotation in common usage and the\rfinancially optimal rotation which maximises net present value and find that\rthe results are particularly sensitive to the choice of management and methodological\rassumptions. Specifically, we find that better site productivity and thin\rversus no-thin options result in shorter rotations across all optimisations,\rreinforcing the usefulness of this type of financial modelling approach. This\rinformation is critical for future policy design to further incentivise\rafforestation of agricultural land.