Recommended valuation methods for wooded land and standing timber in IEEAF

Transcription

1 eurostat STATISTICAL OFFICE OF THE EUROPEAN COMMUNITIES B1 - National accounts methodology, statistics for own resources Item 2.5 of the agenda Luxembourg, May 2001 Recommended valuation methods for wooded land and standing timber in IEEAF Eurostat B1 Eurostat Task Force on Forest Accounting Meeting of 12 and 13 June 2001 Luxembourg, BECH building Room B2/404

2 Recommended valuation methods for wooded land and standing timber in IEEAF 1 Introduction Tables 1b and 2b of IEEAF (Eurostat 1999) require valuation of wooded land and standing timber, both stocks and changes in stocks. Tables 3 and 5 require valuation of the growth of cultivated timber (see the enclosed copy of chapter 5 of the IEEAF publication for the tables). For the IEEAF, it is important that the values are comparable between countries. To ensure comparability, the same valuation methods should be used in all countries. The recommended methods are simple and easy to implement with a minimum of primary data. They should be used, unless forestry conditions are so different that other, generally more complex valuation methods are justified. Valuation methods are discussed in detail in the report Valuation of European forests Results of IEEAF test applications (Eurostat 2000), based on pilot studies in Austria, Finland, France and Germany. The recommendations below are based on the conclusions in this report. Questions for consideration by the Task Force members: 1. Are the suggested valuation methods suitable for use in the IEEAF? 2. Are the conditions for use of other methods than stumpage value clear and appropriate? 2 Value of standing timber The theoretical value of standing timber is equal to the discounted future stumpage price for mature timber after deducting the costs of bringing the timber to maturity. The stumpage price is the price of standing timber, i.e. the price paid by the feller to the owner of the forest. The costs include thinning (net of the stumpage value) and other forest management as well as rent on the forest land. For non-cultivated forests the management costs are zero or very low. The net present value method as described above is relatively complicated and requires a lot of data, e.g. on the age structure and growth rate of the forest, forest management costs and rent on land. Therefore, simplified methods are often applied. They differ mainly in the complexity of the modelling of revenue and production costs, the data they require and the way the rate of discount is determined. Several valuation methods were tested in the pilot exercises: net present value, stumpage value, consumption value, age constant, sample trunk grading and hedonic pricing. Which of the methods gives more accurate results depends on the characteristics of the forest to be valued, including its exploitation conditions. In general, the choice depends upon the current structure of the stock and the fellings and their assumed evolution in the future. Eurostat (2000), page 13, concludes that, for standing timber it seems that, for purposes of international comparisons, the stumpage value method offers the best solution. 2

3 The stumpage value method uses the value of removals for calculating an average price for removals (i.e. an average price of the wood in the rough). The average felling cost is deducted in order to calculate the average stumpage price. This average stumpage price is applied to the whole stock of standing timber, and to the changes in the stock. The stumpage value method can be seen as a simplified form of the net present value method, with implicit discounting equal to the rate of natural growth (this seems like a reasonable assumption for most EU and EFTA countries, see the Annex for a discussion). It gives good results when the current felling structure (i.e. by species and age/diameter) can be assumed to continue in the future. The stumpage value method has several advantages: 1. Most of the data required can be found in other existing statistics, including Eurostat Forestry statistics (physical quantities of wood removed from the forest by assortments, stocks etc.) and Economic Accounts for Forestry (monetary values of wood assortments removed from the forest). The only supplementary data needed is an estimate of the logging costs, ideally by assortment, in order to move from the value of removals to the value of standing timber. IEEAF table 3c Economic accounts for forestry and logging include data on total logging costs, but not classified by assortment. 2. It can be used to value all the items in the physical timber account in a simple way, not only stocks, but also removals, growth and other changes as well. It is the theoretically correct method for valuing removals. 3. Since it can be seen as a special form of the net present value method, with implicit discounting equal to the rate of natural growth, it can be argued that it is in line with the valuation principles in the ESA and SNA. Conditions for using other valuations methods The other valuation methods are more demanding than the stumpage vale method in terms of data and assumptions. However, the results of the pilot studies suggest that in some cases other methods are more appropriate. In general, this is the case for forests where the age structure is markedly different from that which would result from continuing the current patterns of natural growth and fellings into the future. Under these conditions, the assumptions used in the stumpage value method will not be appropriate. This is the case for overmature forests and large-scale re-afforestation. For overmature forest, the consumption value method should be used. It measures the value of the timber as if it were all cut now, hence its name. The method requires stumpage prices for different species and age or diameter classes. These prices are applied to the stock of timber, which has to be classified in the same way. This type of stock data is generally available in forest inventories. For forests that are the result of large-scale re-afforestation, the net present value method should be used. In this case, the structure of the stock and fellings will change substantially over time. A simple version of the net present value method requires data on the structure of the stock and growth rate of timber by age and species, and the stumpage price of mature timber by species. Assumptions have to be made about the harvesting age and the rate of discount. 3

4 3 Value of wooded land For land, valuation based on transactions is the recommended method. This follows the principles in ESA and SNA. However, transactions data for land are not as easily available as price data for timber. Estimated values vary considerably between the countries that took part in the pilot exercises. This is probably partly related to differences in productivity (growth in m 3 per hectare) and partly to the importance of functions other than wood supply. For those countries where the value of land is important it would be useful to collect data on the prices of forest land. Ideally, transaction prices should be related to bare forest land. In practice, they may have to be estimated based on prices of forest real estates (land and standing timber together) or prices of comparable land, such as marginal agricultural land. 4 References Eurostat (1999): The European framework for integrated environmental and economic accounting for forests IEEAF. Office for Official Publications of the European Communities, Luxembourg. Eurostat (2000): Valuation of European forests Results of IEEAF test applications. Office for Official Publications of the European Communities, Luxembourg. 4

5 Annex: The implicit discount rate As explained in section 2, the stumpage value method can be seen as a special form of the net present value method, with implicit discounting equal to the rate of natural growth. This annex looks at the discount rates this implies, for the EU and EFTA countries. The growth rate of standing timber can be measured as the net annual increment in per cent of the growing stock. The data in the table below are from Eurostat Forestry statistics, and refer to forest available for wood supply. The reference years are from the mid 1990s. Net annual increment (NAI) on forest available for wood supply Country Growing stock 1000 m3 NAI 1000 m3 NAI in % of growing stock EU ,4 be ,7 dk ,8 de ,2 gr ,5 es ,9 fr ,3 ie ,4 it ,1 lu ,3 nl ,2 at ,6 pt ,9 fi ,9 se ,3 uk ,0 EFTA ,9 is ,0 li ,3 no ,3 ch ,3 Source: Eurostat Forestry Statistics in New Cronos The table shows that most EU and EFTA countries have annual growth rates between 2 and 4 percent. The net annual increment includes both changes in the density of the forest and changes in the forest area. For the purpose of calculating the implicit discount rate in the stumpage value method, the growth in area should be excluded. According to the TBFRA- 2000, table 8, most of the countries have only small changes in the area of forest available for wood supply, in the range 0.2% to +0.5% per year. The exceptions are the two countries with the highest growth rates in net increment, Iceland and Ireland, which have annual increases in area of 4-5%. This means that for most EU countries, the implicit rate of discount in the stumpage value method is between 1.5% and 4%. This can be compared to a suggested discount rate of 4% used in Eurostat subsoil asset accounts for oil and gas. Another comparison is with the internal rates of return that were calculated in the pilot studies. In Austria, softwood had an estimated rate of return of 0.03%, while the rate for hardwood was negative. In France, the return varied between 0.3% and 4%, according to species and ownership. 5