The Opportunity Costs Of Plantation Forest Management

Selective cutting methods are likely to result in a trade-off between biodiversity conservation and timber production. In forestry, the trade-off between wood production and non-timber benefits has been examined to estimate the opportunity cost of enhancing biodiversity. By NhungNghien, University of Otago, and Hop Tran, Massey University

Forests are among the most important providers of ecosystem services. Forests are home to more than half of the known terrestrial plant and animal species, and deforestation is the major cause of biodiversity loss. 

Since the global annual rate of natural forest loss is 0.3 percent and appears difficult to reverse, plantation forests may sometimes be a ‘lesser evil’ compared to agricultural land as a means to protect indigenous vegetation remnants. 

Plantation forests are defined as forests of predominantly introduced species established through planting and/or seeding, and forests of native species established through planting and/or seeding and managed intensively. Although only accounting for seven percent of total forest cover world-wide, plantation forests provide approximately 50 percent of total wood production. 

Moreover, there is abundant evidence that plantation forests can provide habitat for a wide range of native forest plants, animals, and fungi. For example, exotic tree plantations can provide important conservation services to protected areas. There is a range of 48 to 135 indigenous and adventive vascular plant species per stand of pinusradiata plantations in New Zealand.

Several common cutting methods have been applied in plantation forests around the world, such as clear cutting, patch-clear cutting, and selection cutting. The dominant cutting strategy for commercial forests in many countries from temperate, boreal, and tropical forests is clear cutting. 

In New Zealand, clear cutting is widely used in both large-scale commercial and small-block farm forestry. The main aim is to promote the rapid growth of most species of well-defined age classes in distinct stands to produce high levels of wood raw materials. 

Patch-clear cutting is a special case of clear cutting involving the removal of all the trees from strips or patches within a stand, leaving the remainder uncut, or clear cutting a series of strips or patches over three or more entries. Patch-clear cutting has less visual impact than clear cutting, and can mimic some natural stand disturbance processes. 

Selection cutting involves cutting a tree or several trees in a small patch to create an uneven-aged stand. Patch-clear cutting and selection cutting have been used in many countries to maximise biodiversity and ecosystem service conservation. Some case studies include the patch-clear cutting of trembling aspen (populustremuloides) in Canada and the use of selection cutting in Mediterranean forests.

Nevertheless, with such more selective cutting methods there is likely to be a trade-off between biodiversity conservation and timber production. 

In forestry, the trade-off between wood production and non-timber benefits has been examined to estimate the opportunity cost of enhancing biodiversity. The opportunity cost is defined as the difference in the net present value (NPV) between a base case (only timber production) and multi-use case. For example, an examination timber harvesting and squirrel population dynamics over a 100-year time horizon showed that the timber NPV increases at the expense of squirrel persistence. 

Applying a similar approach, it was found that the amount of squirrel habitat can be increased without a severe decrease in harvestable timber volume. These studies applied a dynamic and spatial analysis to optimise an ecological-economic system, where ecological objectives are animal species.


Environmental Economic Approach

From an environmental economic approach, many efforts have been made to value biodiversity using stated preference approaches. However, these studies usually focus more on natural forests and wetlands than on plantation forests. 

The most suitable techniques for valuing biodiversity so far have been contingent valuation methods (CVMs). A CVM survey contains a hypothetical market or referendum for respondents to state their willingness to pay for the conservation of a specific species. 

To date, the most reliable studies on valuing biodiversity are those valuing high profile species or elements that are familiar to respondents. Additionally, biodiversity valuation using CVM is influenced by the public’s attitudes toward biodiversity. 

Species that are recognised by the respondents as being useful or beneficial to humans are more quickly protected than those perceived as useless or detrimental. Locals who live around wildlife often have different values to people who live in the cities. For example, some farmers expressed negative attitudes toward elephant conservation because of crop damage by elephants. 

CVM provides useful insights into the values people assign to wildlife in general, however, its information turns out not to be very useful for policy analysis. This is because simply knowing that people are willing to pay a large amount to protect a species says nothing about whether one should manage habitat to protect or enhance the species’ numbers. 


Biodiversity Target

According to the Convention on Biological Diversity’s 2010 target, at least 30 percent of all production plantations should be managed in a suitable manner in order to conserve plant diversity. To help meet this target, the diversity of the associated plant communities in plantation forests is worth valuing. 

We examined the relationship between timber production and associated plant diversity in order to estimate the opportunity cost of conserving biodiversity via a patch-clear-cutting strategy in plantation forests. 

We used the species–area relationship to predict the dynamics of species richness in relation to habitat area dynamics. We calculated the opportunity cost of biodiversity from a private point of view by considering the NPV under clear-cutting and patch-clear-cutting strategies. In order to calculate the NPV, we extended an earlier forest-level optimisation model to include uncertainty in timber growth, plant diversity, and cutting costs. We also performed various sensitivity analyses of the model to the key model inputs.

Our study shows how this opportunity cost can be estimated along with estimates on the costs of changing management strategies. This method therefore provides a rapid assessment of biodiversity value in a plantation forest with a patch-clear-cutting strategy. 

Unlike the CVM method, our approach allows one to directly detect the benefits of a non-market service like biodiversity. However, it should be noted that biodiversity is a non-market good or service, therefore our financial approach may only express a limited portion of its value. The opportunity cost can be considered as a potential way to inform the compensation of forest owners who promote biodiversity in their forests. We then applied this model to a case study of pinusradiata d. don in New Zealand.


Forestry In New Zealand

New Zealand is one of 25 global biodiversity hotspots and yet plantation forests are common (at seven percent and 22 percent of land surface and of total forest area, respectively). As a result, the New Zealand forestry sector contributes 3.4 percent to annual GDP and is the third largest export industry in New Zealand. 

In 2007, approximately 19.3 million cubic metres of round wood were harvested, of which, 19.0 million cubic metres came from the clear felling of 43,000 hectares of plantation forests.

In New Zealand, exotic forests are planted for production purposes only. However, plantation forests are further incentivised because of the potential of such forests to sequester carbon emissions from other sectors. 

Forestry was the first sector to enter New Zealand’s Emission Trading Scheme (ETS), effective from 1 January 2008. This allows new forest plantations to earn carbon credits through the Kyoto Protocol. Plantation forests could also be promoted as supplying other ecosystem services, such as the maintenance of clean water, erosion control, and habitat provision. 

Currently, exotic trees are the main crops in New Zealand, of which, 89 percent is pinusradiata. Pinusradiata was introduced into New Zealand in the 1840s and grows faster here than in any other country, with the typical rotation length being around 28 years.

Since clear cutting is popular and preserving biodiversity is becoming important in New Zealand plantations, we applieda model to find the opportunity cost of conserving understorey plants in p. radiata forests. 


Opportunity Costs

In the baseline scenario, we did not put any restriction on stand age that creates a favourable habitat for any particular species. However, in sensitivity analyses, we varied this stand age according to species re-colonisation or habitats for indigenous plant species.

In the baseline scenario, the optimal rotation age in the clear-cutting strategy was 24 years, a year shorter than that in the patch-clear-cutting strategy. It is also four years shorter than the usual 28-year rotation commonly used in New Zealand (with a range of 25 to 35 years). 

Species richness was substantially enhanced with the patch-clear-cutting strategy vs the clear-cutting strategy (59 vs 11 species, respectively, up to a maximal difference of 72 to 11 species). The clear-cutting strategy, however, was more financially rewarding than the patch-clear-cutting strategy with a gap of 1137 NZD/ha (14 percent) of the total forest. 

As such, the opportunity cost for obtaining one extra species of understorey plant in a plantation forest was 24 NZD on average. Fromthe trade-off analysis between the number of understorey plant species and the NPV in the clear-cutting and patch-clear-cutting strategies,it is clear that the trade-offs begin to happen at a much higher species number (around 20 species) for patch-clear-cutting.

Sensitivity analyses suggested that the NPV and hence the opportunity cost were very sensitive to discount rates. The NPV varied between 255 and 20,519 NZD/ha, and therefore made the opportunity cost per extra species range from 5 to 429 NZD. The optimal rotation age was also sensitive to discount rates, and was between 16 and 33 years. However, there was only a slight difference (one year at most) in the optimal rotation ages between the two cutting strategies. Species richness was not very sensitive to discount rates as expected.

When cutting size was varied between 1.5 and 5 ha, the optimal rotation age remained the same for the clear-cutting strategy (24 years) and the patch-clear-cutting strategy (25 years). Species richness increased significantly, ranging from 31 to 72 species/ha, in the patch-clear-cutting strategy. 

There was a trade-off between species richness and the NPV as the NPV reduced from 7490 to 6861 NZD/hain this strategy. As a result, the difference in the NPV between the two cutting strategies ranged from 666 to 1295 NZD/ha. The opportunity cost, in this case, did not vary in the same direction as the NPV did with regard to the cutting size. The opportunity cost decreased from 33 to 21 NZD/species as the cutting size decreased from 5 to 1.5 ha. That is, the latter was the optimal stand size for a forestry manager to adopt in terms of low cost per extra species gained.

The opportunity cost was not sensitive to the exponent of the species–area curve. It varied between 23 and 24 NZD per extra species as the exponent increased from 0.15 to 0.32. The higher the exponent, the larger the number of species in plantation forests (between 53 and 60 species for the patch-clear-cutting strategy). An increase in the exponent of the species–area curve in this case could be a higher level of stand age heterogeneity or an older growth forest.

The opportunity cost increased disproportionately from 24 to 111 NZD per extra species as the favourable stand age increased from 0 to 20 years. Species richness decreased significantly with an increase in A, ranging from 12 to 41 species/ha in the patch-clear-cutting strategy and from 2 to 8 species/ha in the clear-cutting strategy. The opportunity cost increased at a slower rate as the economies of scale of the harvesting went down. The optimal rotation age for the clear-cutting strategy (20 years) was five years shorter than that of the baseline scenario.


Sustainable Management Scenario

In the sustainable management scenario, the optimal rotation age varied between 17 and 35 years. It is noted that this is a minimum cutting age, so that it helps to create a forest with a mixture of young, mature, and old forest stands that could be a habitat for a wide range of plant species. Putting an age restriction on delaying the harvesting for understorey plant species that prefer old growth forests increased the opportunity cost sharply from 34 to 150 NZD per extra species.

From the timber price and growth uncertainty analyses for optimal rotation and biodiversity of plantation forests in New Zealand, the mean species richness was 58.6 species/ha for the patch-clear-cutting strategy, and was 11.7 species/ha for the clear-cutting practice. 

The mean optimal rotation age for both strategies was about 22 years, with the patch-clear-cutting being one year wider in magnitude. The mean NPVs were 10,103 and 11,362 NZD for the patch-clear-cutting and clear-cutting, respectively. The opportunity cost was therefore 27 NZD per extra species.

In a time of rapid climate change, biodiversity conservation in production plantations has been called for in order to prevent accelerated loss of biodiversity. 

Assuming that forest stands at a certain age can generate a suitable habitat for plant species, the dynamics of species richness follows a power–law relation with the habitat area. The ecological-economic model therefore implies the higher the level of heterogeneity in the distribution of stands with different age classes, the higher the species richness, and the smaller the NPV.

The results suggest substantial biodiversity benefits from the patch-clear-cutting strategy over the clear-cutting strategy for understorey plant species. However, the opportunity cost was non-trivial at 1260 NZD/ha. This opportunity cost per ha was close to an estimate of environmental values for plantation forests in New Zealand (900 NZD/ha) using choice modelling. 


Cutting Strategies

Our finding about the opportunity cost was also in line with the finding that the patch-clear-cutting strategy enhances biodiversity but lowers financial returns. However, the difference in optimal rotation ages between the two cutting strategies was small (about one year), suggesting that forest managers would not need to delay cutting in order to enhance biodiversity through the patch-clear-cutting strategy. 

It is stressed that our estimated opportunity cost may only represent a limited portion of biodiversity value. In the case that the NPV is negative, forest owners would abandon the forests, and therefore there is no opportunity cost of biodiversity.

Furthermore, the opportunity cost decreased with a decrease in the patch-clear-cutting size. That is because when patch-clear-cutting size was reduced, the species richness increased and the timber revenue decreased, but at a slower rate. Our sensitivity analysis results suggested that the opportunity cost was very sensitive to the discount rate, an important factor in environment and ecosystem valuation. 

Therefore, there was a large difference in the opportunity cost from using a social discount rate (a low or even zero discount rate) and a private discount rate (a high discount rate). The results also implied that it was very costly to enhance the value of plant species in mature and old growth forests. 

The scenario analysis indicated that there was a trade-off between sustainable management and timber revenue. It is relatively expensive to create a plantation forest with a mixture of young, mature, and old forest stands, which support the forest structure diversity (and hence plant species diversity).


Application In Other Countries

The model developed can potentially be applied to other types of forests and in other parts of the world. However, species–area relation parameters, cost parameters, timber prices, and growth parameters would need to be adapted. The results of this particular model are probably most transferable to plantation forests in temperate parts of countries such as Chile and Australia since p. radiata is also a major exotic tree species grown in these countries.

In the last half century, about 60 percent of all ecosystem services have declined. One reason for this is that the benefits of ecosystems, such as watershed protection and habitat provision, have not been an integral part of the formal economic system. 

Paying for ecosystem services has been applied in some countries, such as Costa Rica, the US, and South Africa among others. For habitat provision, such as the one generated by using a patch-clear-cutting strategy in our study, it has been suggested that funding is via direct payment to achieve the socially optimal level of provision. 

The opportunity costs reported in our study could, therefore, be considered as means to inform the appropriate payment level to promote biodiversity in plantation forests. In some cases, however, national policy makers may also wish to consider carbon sequestration associated with different forestry practices. 

At national and local levels, policy makers might also wish to reduce erosion and flood risk and improve fresh water quality in all plantation forests or particular watersheds. In such cases, they might wish to pay private foresters even more to change forestry practices (or else buy up forests for the government or even pass laws that require a certain type of forest management). Indeed, some Regional Councils in New Zealand have required certain harvesting strategies to protect against flood risk.

These results could also have an implication for implementing the Reducing Emissions from Deforestation and Forest Degradation (REDD+) mechanism, which considers the role of conservation, sustainable management of forests, and enhancement of forest carbon stocks. The REDD+ mechanism has been suggested both to be an effective tool for climate change mitigation (via carbon sequestration) and to offer the important co-benefits of biodiversity conservation.

In our study, only timber values were considered in the calculation of the opportunity cost, other values such as carbon sequestration, watershed protection, soil preservation, and water quality benefits, among others, have been ignored. If these values were added, then the patch-clear-cutting strategy could become optimal from a both financial and biodiversity perspective (compared to the clear-cutting strategy).

In New Zealand, it has been known that specific management actions can benefit particular threatened species (clear-cutting edges provide foraging habitat for New Zealand falcons). Furthermore, it should be noted that the ability of a species to persist in the landscape depends on its metapopulation dynamics (by processes of colonisation and extinction). There is evidence that the shape of the patches can affect the properties of the stand, such as increasing tree mortality with wind damage.

The composition of understorey species is very dependent on the geographic location of the forest and on the stage of plantation forest development. For example, new plantings on coastal sands will likely only have a very few species present, whereas forests on the central volcanic plateau may have a rich understorey of both exotic and indigenous species. 

In a recently planted p. radiata in the Kinleith Forest, 35 vascular plant species were found, 67 percent of which were indigenous. This level of species richness was greater than that for many New Zealand natural forests. 


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