Benefit–cost Analysis of Vegetation Management Alternatives: An Ontario Case Study
Summary (2 min read)
Introduction
- Ontario’s forest sector is a key component of the province’s economy (OMNDMF 2010).
- BCA provides the most comprehensive framework for evaluating any economic investment, as it estimates values associated with inputs and outputs for each activity (Nautiyal et al. 2001).
- An IRR greater than the existing market interest rates in general indicates a relatively profitable investment (Campbell and Brown 2003).
Methods
- The simulations and benefit–cost analyses presented in this paper are based on data from six Vegetation Management Alternative Program (VMAP) studies.
- In addition, the internal rate of return for each treatment was estimated to compare changes in NPV over different discount rates.
- Black spruce is the main crop species at this site.
- Treatment costs, projected gross total volume and merchantable volume of crop tree species at 70 years by study site and treatment.
BS and SIL treatments. Treatment details are presented in Table 1. Bars show the minimum and maximum ranges in respective treatment groups. All costs are discounted at 2% rate.
- 87, No. 2 — Th e For esTr y Ch r oNiCl e 265 where B and C are benefits and costs, respectively, associated with each vegetation management treatment over time t, and r is the discount rate.
- Both NPV and BCR depend on the discount rate used for analysis.
- For private land forestry situations, the discount rate corresponds to the opportunity cost of capital (Johansson and Löfgren 1985).
- Treatment details are summarized in Table 1.
Results
- The results of benefit–cost analyses are presented by site and treatment.
- Treatment details are summarized in Table 1. 87, No. 2 — Th e For esTr y Ch r oNiCl e 267 higher as the treatments are repeated for three to five years; for example, CRb, which was repeated four times after the initial treatment, had the highest cost (CAD$1750.00 per ha).
- Average total cost including site preparation, planting, treatment, harvesting, transportation, and overhead ranged from CAD$5870.40 per ha to CAD$6663.30 per ha (Fig. 1b).
- Total and merchantable volume Projected GTV and GMV of crop species at 70 years for each site and treatment are presented in Table 2. Fig. 2 and Fig. 3 show the overall trends in GTV and GMV, respectively.
- At a 2% discount rate, aerial herbicide applications produced more than double (for crop species) and more than triple (for all crop and non-crop species) the NPV than other treatment groups.
Discussion
- The study results indicate that the aerial herbicide treatment group provided the most cost-effective treatments, resulted in the highest GTV and GMV, highest average value of fibre produced, and highest NPV, BCR, and IRR when compared to ground herbicide application, cutting, and cutting plus herbicide treatments.
- Their use in forest management continues to be contentious affecting operations in the forestry sector (Wyatt et al. 2011, this issue).
- Treatment details are presented in Table 1.
- The treatment costs also depend on the terrain, Fig. 6. Net present values (NPV; a–d) and benefit–cost ratios (BCR; e–h) at different discount rates and high lumber prices for alternative vegetation management treatments.
- An IRR greater than 3% indicates that investment in vegetation management alternatives is not only economically justifiable, but also leads to increased forest industry competitiveness (Baker and Powel 2005).
Conclusions
- Economic benefit–cost analysis is an effective tool for investment decision making and policy formulation.
- The authors used stand-level benefit–cost analyses of 12 vegetation management treatments applied at six study sites in northern Ontario to evaluate net present value (NPV), benefit–cost ratio (BCR), and internal rate of return (IRR) for the resulting tree crop at 70 years following treatments.
- Under the assumptions used in this case study, the authors found that crop trees in treated plots produced higher projected gross total and merchantable volumes and value of fibre produced than did those in untreated control plots.
- Trees in aerial herbicide treatment groups had more than double (for crop species) and more than triple (for crop and non-crop species) the NPV of other treatment groups.
- Values of IRR greater than 3% indicate that investment in vegetation management alternatives is economically profitable for the forest industry and may help to improve its competitiveness in forest products markets.
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Citations
18 citations
18 citations
Cites background from "Benefit–cost Analysis of Vegetation..."
...Homagain et al. (2011) also reached the conclusion that aerial herbicide is the most cost-effective way to suppress competition, while mechanical control of competing vegetation could still be profitable....
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17 citations
15 citations
15 citations
Cites background from "Benefit–cost Analysis of Vegetation..."
...1997; Saksa and Miina 2010) and profitability of various release treatment techniques (Homagain et al. 2011a; Homagain et al. 2011b)....
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...…Opio et al. (2009) presented a protocol to help determine the number of times a stand requires treatment and a few studies have compared cost efficiency (Bell et al. 1997; Saksa and Miina 2010) and profitability of various release treatment techniques (Homagain et al. 2011a; Homagain et al. 2011b)....
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References
32 citations
"Benefit–cost Analysis of Vegetation..." refers background in this paper
...…(Boateng 1996, D’Anjou 1996, Thorpe 1996, Comeau and Harper 2009), Ontario case studies (McClain et al. 1994; Willcocks et al. 1997; Bell et al. 1997; Pitt et al. 2000; Pitt et al. 2004; Dampier et al. 2006; Dacosta et al. 2011, this issue), and a Quebec case study (Fortier and Messier 2006)....
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31 citations
30 citations
"Benefit–cost Analysis of Vegetation..." refers background in this paper
...Cost estimates for the aerial application of herbicides are based on data previously published from the studies of interest (Bell et al. 1997, Dampier et al. 2006) and current estimates provided by Zimmer Air Services Inc., Thunder Bay and Jack Fish River Forest Management Inc., Hornepayne, Ontario....
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...The costs associated with the various treatments also vary greatly (Bell et al. 1997, Dampier et al. 2006)....
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...…case studies (Boateng 1996, D’Anjou 1996, Thorpe 1996, Comeau and Harper 2009), Ontario case studies (McClain et al. 1994; Willcocks et al. 1997; Bell et al. 1997; Pitt et al. 2000; Pitt et al. 2004; Dampier et al. 2006; Dacosta et al. 2011, this issue), and a Quebec case study (Fortier and…...
[...]
28 citations
"Benefit–cost Analysis of Vegetation..." refers background in this paper
...…(Boateng 1996, D’Anjou 1996, Thorpe 1996, Comeau and Harper 2009), Ontario case studies (McClain et al. 1994; Willcocks et al. 1997; Bell et al. 1997; Pitt et al. 2000; Pitt et al. 2004; Dampier et al. 2006; Dacosta et al. 2011, this issue), and a Quebec case study (Fortier and Messier 2006)....
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24 citations
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Frequently Asked Questions (10)
Q2. What are the commonly used measures for conducting benefit–cost analysis?
Net present value (NPV), benefit–cost ratio (BCR) and internal rate of return (IRR) are the most commonly used measures for conducting benefit–cost analysis.
Q3. What are the four strategies that are used to manage the forest?
These are: preventive silviculture and natural regeneration, mechanical site preparation, early planting of size-adapted stock, and use of mechanical release where and when needed (Thiffault and Roy 2010).
Q4. What is the discount rate for NPV and BCR?
Given current market competitive interest rates offered by commercial banks, the authors used a real discount rate ranging from 2% to 10% to assess the sensitivity of NPV and BCR.
Q5. What was the highest IRR for all species?
The aerial herbicide treatment group produced the highest IRR (4.32% for crop species and 4.49% for all species), whereas treatments that involved cutting plus herbicides had the lowest IRR (2.50%) for crop species, and cutting alone had the lowest IRR (3.02%) for all woody species combined.
Q6. What are the effects of herbicide reduction on the landscape?
the results of their studies are applicable to the VMAP study sites only, Dacosta et al. (2011) have modelled the landscape-level effects of reduced herbicide use in two forests in northern Ontario and found that herbicide reduction would negatively affect the overall wood supply of both softwoods and hardwoods, increase costs of wood transportation and silviculture, and increase the active road network.
Q7. What are the main challenges of herbicide-free forest vegetation management in Quebec?
herbicide-free forest vegetation management strategies, which have been implementing in Quebec since 2001 when the province banned the use of forest herbicides in commercial forestry, pose major challenges to intensive silviculture, especially where high volumes of lumber and fibre are expected.
Q8. What are the risks of brush saws?
Risks of gasolineand oil spillage, and inhalation of exhaust emissions from brush saws pose potential environmental and health risks (Dubeau et al. 2003).
Q9. What is the Crown Forest Sustainability Act?
which states that “large, healthy, diverse and productive Crown forests and their associated ecological processes and biological diversity should be conserved” (Statutes of Ontario 1995).
Q10. What was the average gain in GTV for all treatment groups?
All treatment groups exhibited a considerable gain (from 3% in cutting plus herbicide to 49.7% in aerial herbicide) in average GTV at age 70 compared to the controls.