ROTATION

“Most important single decision in management plans"

Rotation period is the time between the establishment of a stand of

trees and when that same stand is ready for a final cut.

Importance of rotation in forestry?

For determination of the most advantageous harvest condition

Financial or Economic Rotation

 Rotation which yields highest net return on the invested capital
 Most profitable
 Rotation of Maximum volume production or rotation of
maximum sustainable yield
Mean Annual Increment = Volume/Years
= Average volume

When MAI = CAI

 Optimizing the Use of Forests for
Harvested Wood

The length of time in the rotation is critically dependent

upon the way in which trees grow.

• Should managers base decisions

on ?
– each individual tree in a stand,
– the stand as a whole, or
– the whole forest (multiple stands)
– the ecosystem
 Perspective Matters
• Decisions based on a single
tree
– Diameter limit
– Crop tree selection
– Financial maturity of crop trees
• Decisions based on a
stand
– Even-aged
• Optimal rotation length
– Uneven-aged
• Single tree selection
 Growth of Trees

• Dependents on the density of the stand of trees, the soil

condition, weather and rainfall, and the incidence of disease
and pests

• After replanting, the trees initially grow at a rapid rate, but

the mass of wood is relatively small.

• As trees mature growth eventually slows.

• Growth can become negative as disease and death

associated with aging has a greater impact.

• Growth of a hypothetical stand of trees can be expressed as

a function of the age of the trees in the stand.

5
Marginal Average Growth

6
 Volume of Wood Over Time

Volume
(cubic ft)

Peak MAI

A’=36.25 Age
Maximizing Total Volume 7
 Optimal Rotation
 Should the harvest occur when MAI is at its peak?

 This would maximize the total volume of wood harvested

from the stand, but not necessarily the net benefits, need
to consider benefits and costs
 If all value of forest is in the wood harvested, then
maximizing net benefits is the same as maximizing
profits
 The forest manager's job is to maximize the present value
of this stream of costs and benefits by deciding the
optimal rotation length.

8
 Revenue/ Stumpage Value

• Revenue is generated at harvest and is referred to as

stumpage value.
• The value of standing timber is stumpage, which is the
value of the timber at some utilization or transportation
centre minus the costs of logging and delivery.
• Maximum price that an efficient logger in competition will
be willing to pay for standing timber.
• Stumpage value of a forest stand tends to increase with
the age of the stand for at least three reasons:
– trees continue to add an increment of wood each year as
long as they survive
– the wood value per unit (e.g. per cubic foot) increases

– relatively large timber usually costs less per unit to harvest

and to handle than does small timber
 COST
• The costs include planting, maintenance such as disease
control, fire prevention, thinning, pruning and removal of
deadwood and pest control.
• Two distinct costs in growing timber:
– cost (interest) involved in holding capital in the form of
the timber inventory, and
– the cost (rent) of the land.
• The cost of holding an inventory of timber is therefore the
interest charge on the value of the timber capital; and
• Appropriate rate of interest is the highest rate that the
investor could earn (after appropriate allowance for risk
and uncertainty) on capital invested elsewhere
 Cost & Revenue

• The relevant costs and revenues are therefore

straight-forward in-principle at least.
• On the revenue side is the stumpage value of the
timber, increasing at a rate that changes through
time as the forest grows older.
• On the cost side is the interest charge on the capital
tied up in the form of timber, and the opportunity
cost of the land.
 Production Function
– Highest cost input is time, an opportunity cost
– Opportunity to sell now instead of later

Relationship between inputs (age) & outputs (volume)

Output
(volum
e)

Inflecti Biological
on maturity
point
Input (age)
 Economic rotation
Determination of ER

2 economic tools:

1. Net Present Value (NPV)

2. Land Expectation Value (LEV)
 Net Present Value
 Present value of net benefits that will be generated by the project

 recognizes money's time value

NPV = Present value (Revenue) – Present value (Costs)

 Net Present Value (NPV)
Let C0, C1, C2, C3……& Ct, be the costs and
B1, B2, B3……& Bt the benefits in the years 0, 1, 2, 3…. & t.
Let the discount rate be ‘i’ per cent.

The net discounted cash flow or Net Present Value (NPV) =

B0 + B1 / (1+i)1 + B2 / (1+i)2 + ……….+ Bt / (1+i) t -
C0 - C1 / (1+i)1 - C2 / (1+i)2 - ………- Ct / (1+i)t
t t
NPV (PNW) = ∑ Bt /(1+i) t __ ∑ Ct /(1+i) t
t=0 t=0
Where ‘t’ refers to the period of time.

NPV (Present Net Worth) for any project to be accepted,

should be > 0 or at least = 0.
 LAND EXPECTATION VALUE
LEV or Soil Expectation Value (SEV): (Faustman’s formula)
18th century Germany: Govt wanted to divert private forests for agriculture and wished
to compensate the private forest owners; and wanted to determine the compensation
rates.
Land Expectation Value (LEV) is the present value, per unit area,
of the projected costs and revenues from an infinite series of
identical even-aged forest rotations, starting initially from
bare land.

Value of barren forest land = value of outputs that would grow out
of agriculture / forestry on that land
Value of Outputs = Difference between capital values of all
incomes and expenses which would occur till infinity (given
a fixed interest rate)

LEV is the net present value (NPV) for an infinite time horizon
LEV = NPV (1 + i)n / (1 + i)n − 1
 LEV
“Discounting to the present all forecasted future net incomes and
subtracting from this sum the discounted forecasted future expenses”

It is computed by Faustman’s formula as:

t=R t=R

Σ Bt (1+i) R-t - Σ Ct (1+i) R-t

t=0 t=0
LEV =
(1+i) R – 1

Where Bt is a revenue received at time t,

Ct is a cost incurred at time t,
R is the rotation age,
i is the percent interest rate.

Value of LEV will clearly vary with the rate of interest, i, and the
length of rotation R.
Determining the crop rotation for Eucalyptus hybrid.
 ROTATION
Determination of ER

 With negative values, no sense in growing trees for that

rotation
The economic rotation being mainly a function of costs, revenues, and
discount rates may give an age that may not meet the market needs
or the technical requirements of wood.

Economic rotation < Silviculture rotation

Changes in the interest rate
Interest rate and optimal rotation period are negatively related.
An increase (decrease) in i causes a decrease (increase) in T.
Figure 18.3 The variation of the optimal felling age with the interest
rate for a single rotation forest
6

i 3

0
0 20 40 60 80 100 120 140 160
T

Changes in planting costs

A change in planting costs changes optimal rotation in same direction.
oA fall in k, for example, increases the site value of the land, .
oWith planting costs lower, the profitability of all future rotations will rise, and so
the opportunity costs of delaying replanting will rise. The next replanting should
take place sooner. The optimal stand age at cutting will fall.v
Changes in the net price of timber
• The net price of timber (p) and the optimal rotation length are negatively
related.
•Therefore, an increase in timber prices (P) will decrease the rotation period

Non Timber Value

If non-timber values are greater in old than in young forests (are rising with stand
age) then non-timber values have a positive annual increment,
generating a longer optimal rotation.

CO2 sequestration
growth rate slows right down with old age and so favours
shorter rotations

An increase in harvest costs will

increase the rotation period.

Larger is the site value,

shorter will be the optimal rotation