4. Monetary evaluation of forest management

Main questions of forest management are:


Literature offers three approaches to answer the questions above, which are as follows:


maintenance costs, insurance and other contribution, cost of rapid consumption parts, etc. in order to define the cost machine.

advances for the activity development.

management activity.

Timber Buildings and Sustainability

costs include the following:

• Costs for the LC accounts

or dedicated statistical publication.

3.3 Revenues

Formally,

88

3.2.3 Overhead costs

as benefits or facilities for the future of workers.

• Financial capital necessary for the possession and use of working capital above descripted, to remunerate workers as well as to cover the interest of financial

• Labor, concerning employers involved in the transformation process, such as forest workers and other units that have administrative functions. In both cases, the remuneration changes according to the skill and qualifications. The fundamental information is not the payment for hour or day, but the costs sustained by the entrepreneur that include tax, insurance, and other costs paid

• Entrepreneur organization, done by the person who assumes the forest activity risk. Currently, the payment is split between equity profit and extra profit. The first covers the responsibility assumed by the forest entrepreneur to manage the activity and it is estimated as about 10% of the total cost and named as equity net profit, while extra profit is obtained as differential between total costs (include equity profit) and total revenues. This amount covers the risk

Also named as indirect costs, these do not contribute directly to obtain the product but exist to ensure LC functioning. They are related to the LC unit as a whole, and they cannot be applied or traced to any specific unit of output. Overhead

• Costs for managing goods and material purchases involved in the forest utilization process; costs due to the activity of timber trade in the market

• Costs for managing markets and operator networks

• Costs for managing of insurances, taxes, and other contributions due to the LC

The output of the silvicultural activity can be expressed in terms of volume or value. The first results by measurement operations of the standing, with special emphasis to the volume of row timber material removal from the ground [V] differentiated for market destination [i] and expected to be sold in the polder (first competitive timber market). The latter is the result of the volume of row timber material for the relative market price [MP]. Data can be collected by market survey,

VdM <sup>¼</sup> <sup>X</sup><sup>m</sup>

j!1

ð Þ Vi ∗ MPi

• Combination of the above-mentioned approaches

In all these approaches, results are based on common comparative method. This method ensures a strictly direct or indirect connection between market and the good under evaluation.

#### 4.1 Appraisal theory

Theoretical background on evaluation method has been defined from International Valuation Standard Council [21]. In this contest, two main approaches are suitable: market comparison approach and cost approach. The first obtains the timber value by comparing the timber under evaluation with other similar timbers sold in the market; for which, price and at least one technical parameter are well known. The latter defines the value considering all expenditures that the enterprise have to sustain in order to obtain the product under evaluation.

Timber evaluation can have different assessments depending on whether one of the following two objectives is pursued:


The first target tends to favor the major LCs, even if the LCs who would take part in the market are very few in number, at least only one. Those LCs are technologically advanced, have greater financial availability, and have wider timber markets, as they can be international timber markets. The hypothesis is that this setting should ensure an effective use of timber and that it can achieve the highest addend value. On the other hand, the second target tends to align itself with the most frequent conditions compared to the local area framework, so as to allow the greatest participation of the local LCs at the market. The hypothesis is that if a large number of LCs take part in the market, that should ensure highest LC competition and the highest stumpage price.

#### 4.1.1 Market value

#### 4.1.1.1 The stumpage value

The first step is to acquire an adequate observation numbers, at least not less than 4 for each variable used in model, of

4.1.2 Forest management evaluation costs

DOI: http://dx.doi.org/10.5772/intechopen.87572

• evaluated to reduce forest management costs;

Production cost is formally obtained as

KTot <sup>¼</sup> <sup>X</sup><sup>n</sup>

work finished and the day when the expenditure has been done.

i!1 ki " #

material can be

in money"<sup>1</sup>

.

4.1.3 The transformation value

achieve the stumpage value (Figure 4).

carrying out transforming process:

<sup>1</sup> Civil Code, article 1655.

91

The production cost approach concerns the technological cycle step and it includes only the expenses necessary to carry it out. This circumstance mainly happens when forest management has social objectives or the timber raw material has high market value and the FLOs prefer it to be sold directly in the timber raw material market because they expect strong completion among sawmills. The FLOs operate on service markets. They purchase the LC services for felling, processing and transportation of plant to an area which is easy to access (landing). Timber raw

Operative Machinery Costs Analysis within Forest Management Implementation Frame

• made available to the local community to pursue their objectives;

• sold in the timber raw material, directly or through dedicated agencies.

FLOs have to pay the LCs in any case. Activity is developed within the regulation code of "tender" to fell stand. The characteristic of this entrust is that FLOs have to pay LCs for their performance. The main national law states that an enterprise, as LCs, "assumes, (...), the fulfilment of a work or a service towards a consideration

where [K] is the total costs, [k] is the elementary costs, [i] is the types of costs, [r] is the discount rate, and [t] time and [ j, s] are, respectively, the day when the

The last procedure provides the evaluation of the stand as a comparison between the value of the timber raw material market and all costs necessary to transform the stand into marketable products. The transformation process increases timber value step by step until it becomes timber raw material. The evaluation process, on the other hand, moves in the opposite direction: starting from the market products to

The fundamental relationship at the base of the procedure is that timber raw material market price is equal to the sum of stumpage price with the costs of

MPTRM ¼ SV þ KTot

where [MPRTM] is timber raw material market price in the first market after the stand is felled; [i] is the types of timber product obtained (timber construction, fuel wood, etc.); [SV] is the stumpage price; [KTot] is the total costs of transformation

<sup>þ</sup> ki <sup>∗</sup> <sup>r</sup> <sup>∗</sup> <sup>t</sup>ð Þ <sup>j</sup>�<sup>s</sup> <sup>365</sup> � �


the value of the stand can be determined through two procedures:

a) By direct comparison, using the fundamental proportion to evaluate a market good. Having market prices and at least one technical parameter value, the proportion adapted to evaluate forest stand marketable is

$$\sum\_{i \to 1}^{n} \text{SV}\_i : \sum\_{i \to 1}^{n} \text{Vol}\_i = \text{SV}\_{\mathbf{x}} : \text{Vol}\_{\mathbf{x}}$$

where [SV] is the stumpage price, [Vol] is the volume felled, [i] is the number of market observations collected by a survey, and [x] are the data related to the stand under evaluation. Developing the proportion above in favor of SV, it becomes

$$\mathcal{SV}\_{\mathbf{x}} = \begin{bmatrix} \frac{\sum\_{i \to 1}^{n} \mathcal{SV}\_{i}}{\sum\_{i \to 1}^{n} \mathcal{Vol}\_{i}} \end{bmatrix} \* \begin{bmatrix} \mathcal{Vol}\_{\mathbf{x}} \end{bmatrix}$$

where the ratio in the square bracket is the stumpage value for cubic meter. b) By indirect comparison, building an econometric model

$$Y = f(\mathfrak{x}\_1, \dots, \mathfrak{x}\_i, \dots, \mathfrak{x}\_n, e)$$

where [Y] is the dependent variable vector of the stumpage price, [x] are the generic technical variables, and [i] is the type of variables such as forest area (hectares), timber volume (cubic meter), infrastructure index (qualitative data), and other parameters.

The strong limits of both procedures are (a) the lower number of LCs that take the risk that low number of LCs have an informal agreement about the stumpage value, and the LC that acquire the stem it was decided before the timber market start officially; and (c) there isn't a well structured culture on how and what forest data, technical and market, should be collected. Each forest owner has its collection, and each forest owner itself selects the variables that should be registered.

#### 4.1.1.2 Timber raw material market

It is the market in which the trees, transformed in marketable products, are sold as timber raw material. That market has two relevant advantages for the evaluation proceeding: (a) even if the number of FLOs or LCs that support the supply is very low, the sawmills are much more so the market should have less distortion; and (b) it is the first market later to the stand felling.

The market price of timber raw material is obtained by market survey. Database is built using the price registered in the market.

Operative Machinery Costs Analysis within Forest Management Implementation Frame DOI: http://dx.doi.org/10.5772/intechopen.87572

#### 4.1.2 Forest management evaluation costs

4.1.1 Market value

4.1.1.1 The stumpage value

Timber Buildings and Sustainability

and other parameters.

90

4.1.1.2 Timber raw material market

(b) it is the first market later to the stand felling.

is built using the price registered in the market.

than 4 for each variable used in model, of

• market price (dependent variable);

• technical variables (independent variables),

tion adapted to evaluate forest stand marketable is

Xn i!1

SVi :

SVx ¼

b) By indirect comparison, building an econometric model

The first step is to acquire an adequate observation numbers, at least not less

a) By direct comparison, using the fundamental proportion to evaluate a market good. Having market prices and at least one technical parameter value, the propor-

where [SV] is the stumpage price, [Vol] is the volume felled, [i] is the number of market observations collected by a survey, and [x] are the data related to the stand under evaluation. Developing the proportion above in favor of SV, it becomes

SVi

∗Volx

P<sup>n</sup> i!1 P

n <sup>i</sup>!<sup>1</sup> Voli � �

where the ratio in the square bracket is the stumpage value for cubic meter.

Y ¼ f x1; …; xi ð Þ ; …; xn; ε

where [Y] is the dependent variable vector of the stumpage price, [x] are the generic technical variables, and [i] is the type of variables such as forest area (hectares), timber volume (cubic meter), infrastructure index (qualitative data),

The strong limits of both procedures are (a) the lower number of LCs that take the risk that low number of LCs have an informal agreement about the stumpage value, and the LC that acquire the stem it was decided before the timber market start officially; and (c) there isn't a well structured culture on how and what forest data, technical and market, should be collected. Each forest owner has its collection,

It is the market in which the trees, transformed in marketable products, are sold as timber raw material. That market has two relevant advantages for the evaluation proceeding: (a) even if the number of FLOs or LCs that support the supply is very low, the sawmills are much more so the market should have less distortion; and

The market price of timber raw material is obtained by market survey. Database

and each forest owner itself selects the variables that should be registered.

Voli ¼ SVx : Volx

the value of the stand can be determined through two procedures:

Xn i!1

The production cost approach concerns the technological cycle step and it includes only the expenses necessary to carry it out. This circumstance mainly happens when forest management has social objectives or the timber raw material has high market value and the FLOs prefer it to be sold directly in the timber raw material market because they expect strong completion among sawmills. The FLOs operate on service markets. They purchase the LC services for felling, processing and transportation of plant to an area which is easy to access (landing). Timber raw material can be


FLOs have to pay the LCs in any case. Activity is developed within the regulation code of "tender" to fell stand. The characteristic of this entrust is that FLOs have to pay LCs for their performance. The main national law states that an enterprise, as LCs, "assumes, (...), the fulfilment of a work or a service towards a consideration in money"<sup>1</sup> .

Production cost is formally obtained as

$$K\_{Tot} = \left[\sum\_{i \to 1}^{n} k\_i\right] + \left(k\_i \ast r \ast \frac{t\_{(j-s)}}{365}\right)^2$$

where [K] is the total costs, [k] is the elementary costs, [i] is the types of costs, [r] is the discount rate, and [t] time and [ j, s] are, respectively, the day when the work finished and the day when the expenditure has been done.

#### 4.1.3 The transformation value

The last procedure provides the evaluation of the stand as a comparison between the value of the timber raw material market and all costs necessary to transform the stand into marketable products. The transformation process increases timber value step by step until it becomes timber raw material. The evaluation process, on the other hand, moves in the opposite direction: starting from the market products to achieve the stumpage value (Figure 4).

The fundamental relationship at the base of the procedure is that timber raw material market price is equal to the sum of stumpage price with the costs of carrying out transforming process:

$$\mathbf{M} \mathbf{P}\_{\mathrm{TRM}} = \mathbf{S} \mathbf{V} + \mathbf{K}\_{\mathrm{Tot}}$$

where [MPRTM] is timber raw material market price in the first market after the stand is felled; [i] is the types of timber product obtained (timber construction, fuel wood, etc.); [SV] is the stumpage price; [KTot] is the total costs of transformation

<sup>1</sup> Civil Code, article 1655.

The total cost expresses the total amount of costs regardless of the evidence that

In this case, the silvicultural intervention is entrusted to an LC, which provides a

A B C D E E formula G

7 Gasoline price €/l 1.12 Market

8 Discount rate % 3.00% Market

15 Power HP 80.00 Technical

16 Tires duration hours 3000.00 Technical

Description Range Units Amounts Sources

Market price € 45,000.00 Market

% 10.00% Technical

€ 4500.00 =E2 E3 Our

€ 4050.00 =(E2 E4)/E10 Our

€ 2000.00 Market

year 10.00 Technical

hours 1000.00 Technical

hours 10,000.00 Technical

days 240.00 Technical

hours 4.20 Technical

€ 27,000.00 =E2 E18

survey

documents

elaboration

elaboration

survey

survey

survey

documents

documents

documents

documents

documents

documents

documents

service to the FLOs in exchange for payment of the service. The company that carries out the intervention is the one that, all other parameters being equal, ensures

the resources used are internal. The operating cost focuses only on the variable (additional) costs that are incurred only if the intervention is carried out, ignoring the costs related to the internal resources involved in the works and the costs that the property still support. The last question relates to the value of timber raw

Operative Machinery Costs Analysis within Forest Management Implementation Frame

material, which is quantified through market surveys.

4.2.2 Forest management by tender

1 Types of data

2 Economic data

3 Percentuale di

4 Value at the

5 Annual

6 Market price

9 Average

11 Annual

12 Technical

13 Work days in

14 Working days

10 Technical data

93

the service at the lowest price (Figure 5).

DOI: http://dx.doi.org/10.5772/intechopen.87572

recupero

end of the career

amortization

tires

annual investment

Economic duration

machine usage hours

duration

the year

in hours

Figure 4.

Pathway of timber productions and value formation.

processes from stand to timber raw materials; and [j] is the types of costs. Resolving for the stumpage value, it becomes

$$SV = [MP\_{TRM} - K\_{Tot}] = \left[ \left( \sum\_{i \to 1}^{n} MP\_{TRMi} \right) - \left( \sum\_{j \to 1}^{m} K\_{Totj} \right) \right]$$

The ex ante budget is the tool that foresters usually adopt, where in one site is reported the revenue and in the other site the expenditures. The balance between revenues and expenditures is the stumpage value that LCs take from the commitment to pay at the FLOs when agreement was signed.

#### 4.2 Appraisal approach for entrusting types

#### 4.2.1 Forest management in house

The common model of this forest management is based on the ability of forest property (public or private) to carry out the forestry intervention. The owner directly or through an agency of the same subsidiary carries out forest utilization using personnel, machines, and tools in its possession. The economic and financial questions that accompany this approach are as follows:


#### Figure 5.

Services market: forest land owner purchase logging company service for felling, extraction, and processing timber production at lowest price. Source: Our elaboration.

#### Operative Machinery Costs Analysis within Forest Management Implementation Frame DOI: http://dx.doi.org/10.5772/intechopen.87572

The total cost expresses the total amount of costs regardless of the evidence that the resources used are internal. The operating cost focuses only on the variable (additional) costs that are incurred only if the intervention is carried out, ignoring the costs related to the internal resources involved in the works and the costs that the property still support. The last question relates to the value of timber raw material, which is quantified through market surveys.
