E- forestry Resource Valuation in New Zealand

Transcription

1 FORESTRY MONETARY STOCK ACCOUNT Environmental Accounts Series

2 Publication details This report was prepared by the Environmental Statistics team and published by the Information and Publishing Services Division of Statistics New Zealand. Further information For further information on the statistics in this report, or on other publications or products, contact our Customer Services Centre. Visit our website: or us at: or phone toll free: Auckland Wellington Christchurch Private Bag PO Box 2922 Private Bag 4741 Phone Phone Phone Fax Fax Fax Information Centre Your gateway to Statistics New Zealand Each year, we collect over 60 million pieces of information. New Zealanders tell us how and where they live; and about their work, spending and recreation. We also collect a complete picture of business in New Zealand. This valuable resource is yours to use. But with all the sophisticated options available, finding exactly what you need can sometimes be a problem. Giving you the answers Our customer services staff provide the answer. They are the people who know what information is available, and how it can be used to your best advantage. Think of them as your guides to Statistics New Zealand. They operate a free enquiry service where answers can be quickly provided from published material. More extensive answers and customised solutions will incur costs, but we always give you a free no-obligation quote before going ahead. Liability statement Statistics New Zealand gives no warranty that the information or data supplied contains no errors. However, all care and diligence has been used in processing, analysing and extracting the information. Statistics New Zealand shall not be liable for any loss or damage suffered by the customer consequent upon the use directly, or indirectly, of the information supplied in this product. Reproduction of material Any table or other material published in this report may be reproduced and published without further licence, provided that it does not purport to be published under government authority and that acknowledgement is made of this source. 2

3 Table of contents List of figures... 4 List of tables Summary Highlights Introduction Natural resource and environmental accounts Purpose and use of the account Background to the forestry industry in New Zealand Definitions and structure Account layout Definitions of categories Definitions for row categories Sources and methods Details of data sources National exotic forest description Recoverable annual increment and current annual increment Statistics New Zealand economic data Details of methodology Net Present Valuation methodology Methodology used in this report Coverage of accounts Data table and commentary Data table Commentary on data Future developments Standing timber valuations by exotic species Indigenous forest available for timber supply Valuation of other forest functions SEEA-based full account structure Example of SEEA-based full monetary stock account for Glossary Bibliography Appendix 1 Forestry assets and the forestry industry

4 List of figures Figure 1 Closing timber stock volume and value Figure 2 Timber growth volume and timber growth value List of tables Table 1 Value of exotic standing timber available for wood supply Table 2 Example of SEEA-based full monetary stock account for forestry resources Table 3 Forestry and logging industry statistics

5 1 Summary This report presents a monetary stock account valuation of New Zealand s forestry resources. The account is currently restricted to providing valuations of standing timber available for wood supply from exotic forests. The concepts and methodology used to derive the forestry stock valuations are also included in this report. Stock valuations are presented as for balance sheets, with opening and closing stocks, and stock change valuations. The data is provided as a time series to enable the analysis of changes in the asset valuation over time. The account covers the years This is a developmental estimate and future reports will bring the stock time series more up to date. Exotic standing timber available for wood supply is valued using a type of Net Present Value (NPV) approach. This estimates the value of the forestry asset based on the discounted expected future stream of revenue generated by the resource. The NPV technique is recommended by the System of Environmental and Economic Accounting (SEEA) and is widely used for forestry resource valuation. Indigenous forests available for timber supply should in theory also be valued in this report, but in practice, they have not been estimated due to the lack of suitable and comprehensive data. Based on available information, these forests are likely to be worth hundreds of millions of dollars but this cannot be estimated with certainty. Other forestry functions such as recreation and carbon sequestration could in principle be valued, in addition to the existing market-based estimate. Such valuations may be produced in future reports. 1.1 Highlights The closing stock value of exotic standing timber available for wood supply is $14,323 million for the year ended March 1999, and $14,533 million for the year ended March This compares with the total asset value of New Zealand s energy resources of $7,701 million for the year ended March 2000, and net capital stock (plant and machinery, transport equipment and buildings) with a value of $300,004 million over the whole economy for the same period. The value of harvested timber for the year ended March 1999 was $1,457 million. Forest (recoverable) natural growth was $1,117 million for the year ended March 1999, and $1,142 million for the year ended March The value of the closing stock of exotic standing timber available for wood supply increased 16 percent between 1995 and

6 2 Introduction 2.1 Natural resource and environmental accounts Statistics New Zealand, in association with the Ministry for the Environment, has prepared stock and flow estimates for forestry, fishing, water, and energy resources. Technically, the physical estimates are referred to as natural resource accounts, while the monetary estimates are referred to as environmental accounts. However, these terms are often used interchangeably. Natural resource and environmental accounts are being developed to gather information on the complex relationships between the economy, the environment and society. Work started on the accounts after the Budget 2000 provided funding for natural resource accounts. The forestry accounts are based on an international framework called the System of Environmental and Economic Accounts (SEEA) (United Nations et al, 2003). This framework is an extension of the System of National Accounts (SNA) which Statistics New Zealand uses to compile the national accounts, including Gross Domestic Product (GDP). The SEEA is designed to measure the use of natural resources and the resulting effect on the environment. This account is part of an ongoing series of environmental stock account reports. For the following resources, stock accounts have either been published or are currently being prepared: Forestry a physical stock account has been published, a monetary stock account is available for the first time in this report Water a physical stock account has been published, a monetary stock account is being prepared Energy physical and monetary stock accounts have been published Minerals physical and monetary stock accounts have been published in one report Fish a physical stock account has been published, a monetary stock account is being prepared. Land stock accounts have not yet been developed. Flow accounts have been published for the forestry and energy resources. The release of natural resource and environmental accounts reflects an international trend towards compiling information beyond the traditional measures of economic activity. The accounts reflect the view that the environment has a finite capacity to supply materials and absorb wastes. This environmental information is collected under a framework that allows for adjustments to conventional measures of GDP to reflect environmental degradation and depletion. Existing measures of GDP do not currently account for the degradation and depletion of environmental assets. If, for example, all New Zealand's native forests were commercially harvested, GDP would increase due to an increase in the output of the forestry industry. However, the loss of both the asset and future production capacity would not have been accounted for. To date, no country has produced an official fully adjusted GDP using the SEEA framework. The natural resource accounts also provide a record of the state of the resource over time, and its significance to the New Zealand economy. 2.2 Purpose and use of the account The Forestry Monetary Stock Account provides monetary valuations of New Zealand s forestry assets; specifically, exotic standing timber available for wood supply only. This definition is directly comparable with the similar category in Statistics New Zealand s Physical Stock Account for Forestry Resources in New Zealand (Statistics New Zealand, 6

7 2002). This report not only complements the physical stock report, but it is also part of the wider series of natural resource accounts noted above. It is intended that future reports will include valuations of exotic timber by species, valuations of indigenous timber available for wood supply, and possibly non-market based valuations of forest functions other than wood supply. Despite the current limitations, this report is useful as a complement to the exotic standing timber physical data in the physical forestry stock report. It allows for analysis of changes in the volume and value of exotic standing timber, and for estimating the economic significance of the assets in the context of the New Zealand economy. Preparing the full forestry account under the SEEA framework including estimates for the physical and monetary stocks and flows allows comparisons to be made regarding the availability and use of forestry resources in New Zealand and with other countries. The forestry stock account can be integrated with other economic forestry information to show how the forestry industry is performing in terms of its overall return on assets. If the industry is obtaining a good return from forestry, then additional land may be converted to forestry, and the forestry physical asset base would increase over time. This has obvious implications for non-market forest functions such as carbon sequestration. Conversely, if the industry is receiving a poor return from forestry, land may be converted from forestry to other uses over time. Appendix 1 shows how this information can be brought together and interpreted. 2.3 Background to the forestry industry in New Zealand Forest and other wooded land accounts for almost 10.7 million hectares, or 40 percent of New Zealand s total land (Ministry of Forestry, 2000). Indigenous forests make up the majority of this with just over 6.2 million hectares. Planted production forest accounts for 1.8 million hectares. The remaining 2.7 million hectares are shrubland (Statistics New Zealand, 2002). Of New Zealand s total indigenous forests, approximately 20 percent is privately owned, and approximately 80 percent is crown owned, with the majority of the crown-owned forests being managed by the Department of Conservation (Ministry of Forestry, 2000). Indigenous forests are spread throughout New Zealand, with the main tree species being beech, kauri, rimu and tawa. There have been a number of changes occurring with indigenous forestry in the past decade. The Forests Amendment Act 1993, introduced on 1 July 1993, established a framework for sustainable management of New Zealand s indigenous forests. It incorporated the continual maintenance or enhancement of the current area of indigenous forest, the introduction of an export ban on indigenous wood, and the introduction of legislation to control indigenous forest use. The Act applies to all indigenous forests except those managed by the Department of Conservation, the Timberlands West Coast indigenous production forests (which ceased in 2002), forest allocated under the South Island Landless Natives Act 1906 (SILNA), and planted indigenous forests. New Zealand s exotic forests are dominated by radiata pine, which makes up approximately 90 percent. Douglas fir and eucalyptus make up the majority of the remaining 10 percent. While exotic forests are spread throughout the country, most are in the central North Island. Other significant areas of planted forest resources include Northland, Nelson/Marlborough and Otago/Southland. For the year ended March 2001, New Zealand exported $3.4 billion of wood and wood products (Statistics New Zealand, 2001). This accounted for about 10 percent of total exports for this period. The forestry and logging industry contributed $1.3 billion, over 1.1 percent of New Zealand s total GDP, for the year ending March 2001 (Statistics New Zealand, 2001). When the wood and paper product manufacturing industries are included, the contribution rises to $3.6 billion (3.1 percent). 7

8 3 Definitions and structure 3.1 Account layout The account layout structure is similar to a balance sheet. Timber stock available for wood supply is valued at the beginning and end of each year as opening and closing stock valuations, while major additions and depletions of the timber stock during the year are also valued. However, as the account is restricted to valuations of the major variables (Opening Stock, Harvested Timber, Growth, and Closing Stock) it should not be considered a traditional balance sheet since other changes in stock during the year are not included or valued. Also, even if all stock changes during each year were valued, the account would still not balance since some change variables are estimated on a different basis to that for stock variables. This is discussed below and in This initial account covers the years 1995 to A year refers to the annual period ending 31 March. For example the 1995 period refers to 1 April 1994 to 31 March Statistics New Zealand intends to produce these tables annually. The account is a table that values New Zealand s total exotic timber available for wood supply. An estimate of the value of timber stock by exotic species was not possible at the time of writing, due to lack of data. Similarly, it is not currently possible to provide accurate valuations of timber available for wood supply from New Zealand s indigenous forest. These gaps may be addressed in future accounts. 3.2 Definitions of categories The following definitions are based on the theoretical framework that Statistics New Zealand has used to compile the forestry natural resource accounts. Forests A forest is land with tree crown cover (or equivalent stocking level) of more than 10 percent and an area of more than 0.5 hectares. The trees should be able to reach a minimum height of 5 metres at maturity in situ. This includes: young natural stands and all plantations established for forestry purposes which have yet to reach the crown density of 10 percent or tree height of 5 metres forest roads, cleared tracts, firebreaks and other small open areas, as well as forest nurseries and seed orchards that constitute an integral part of the forest forested land in national parks, nature reserves and other protected areas such as those of special environmental, scientific, historical, cultural or spiritual interest windbreaks and shelterbelts of trees with an area of more than 0.5 hectares and a width of more than 20 metres. Land with a reduced crown cover or small trees is categorised as Other wooded land in SEEA. This includes land with a tree crown cover (or equivalent stocking level) of either 5 10 percent of trees able to reach a height at least 5 metres at maturity in situ, or a crown cover of more than 10 percent of trees not able to reach a height of 5 metres at maturity in situ. Other wooded land also includes shrub or bush cover. Areas with tree, shrub or bush cover of less than 0.5 hectares in area and less than 20 metres in width are classed as Other land. Exotic Exotic species are those not native to New Zealand. The dominant exotic species in New Zealand is radiata pine, which makes up 90 percent of all exotic forests. Douglas fir makes up 5 percent of the total, eucalyptus makes up 2 percent, and the remainder is a variety of special purpose species such as blackwood, black walnut, macrocarpa, ponderosa pine and corsican pine. 8

9 Indigenous Indigenous species are those native to New Zealand. Indigenous forests are sub-divided into softwood (or podocarps) and hardwood (or broadleafs). Softwood species are cone-bearing trees, while hardwood species are flowering trees. Examples of softwood species include: rimu, kahikatea, totara, matai, miro, pink pine, silver pine, yellow-silver pine, tanekaha, toatoa and mountain toatoa. Examples of hardwood species include: pohutakawa, southern and northern rata, tawa, taraire, hinau, kamahi, black maire, pukatea, puriri, and rewarewa. There are three main classes of indigenous forests in New Zealand: kauri-dominated, beech forests, and podocarp-hardwood forests (Ministry for the Environment, 1997). Available for wood supply (AWS) Areas available for wood supply are those where legal, economic, or environmental restrictions do not have a significant impact on the supply of wood. In terms of exotic forests, this involves exotic plantations. In terms of indigenous forests, this consists of indigenous plantations (which are currently assumed to be insignificant); privately owned indigenous forests covered under the Forests Amendment Act 1993; forests covered under the South Island Landless Natives Act 1906 (SILNA); and Timberlands West Coast indigenous forests (until they ceased to be available in 2002). Where a forestry area is considered available for wood supply, the whole forest is treated as being available for wood supply although only limited amounts may be harvested each year. 3.3 Definitions for row categories Opening and closing stock valuation Opening and closing stock valuations are calculated at Net Present Value (NPV) which measures the expected future income generated by the existing timber stock, in present day terms. See 4.2 for a more detailed description of the methodology. Natural growth Natural growth timber volume is also valued at NPV for each period. Natural growth in monetary terms is estimated as the Current Annual Increment of timber (see 4.1.2) multiplied by the NPV price (see 4.2.2). Since the NPV price applies to all volumes of timber, including non-recoverable volumes, the monetary natural growth estimate uses the Current Annual Increment volumes instead of the Recoverable Annual Increment. Harvested timber Harvested timber is measured according to the volume of standing timber harvested, and the prevailing market conditions, during each period. Statistics New Zealand economic data have been used to measure the monetary value of the output of timber from New Zealand s forests. Valuations represent the value of the timber in the period it was harvested. The NPV technique is inappropriate for this variable, as all harvested income is current income. The definition of standing timber in this report is equivalent to the following Australia New Zealand Standard Commodity Classification (ANZSCC) for: Wood in the rough Treated wood in the rough. This report is being prepared under standard Statistics New Zealand industry classifications. Timber outputs are from the Forestry and Logging industry, which includes three subindustries: Forestry, Logging, and Services to forestry. 9

10 4 Sources and methods 4.1 Details of data sources National exotic forest description All standing timber volume figures used in the calculation of timber values in this report are sourced from the National Exotic Forest Description (NEFD). This is an annual publication produced by the Ministry of Agriculture and Forestry (MAF). It is based on an annual survey of commercial forest companies, administered by MAF. This survey covers all planted exotic commercial forests in New Zealand. Indigenous forest plantations are not included. The NEFD is usually available 12 months after the reference period (the NEFD for 1 April 2003 was released in April 2004). Stock data collected in the NEFD survey include species, area and age information. Stock data are point data for a particular period. For example, the 1998 survey is for forestry stock as at 1 April The survey also collects stock change data, including new plantings, restocking, and harvest area and volume. The stock change data covers a full year. For example, 1999 stock change data are collected for the period 1 April 1998 to 31 March Recoverable annual increment and current annual increment MAF derives two annual volume estimates of exotic forest growth from its NEFD survey. The Recoverable Annual Increment (RAI) is an estimate of the recoverable volume of tree growth within New Zealand s exotic forests. The Current Annual Increment (CAI) is an estimate of the total volume of tree growth within New Zealand s forests. As noted in 3.3, the CAI is used in the monetary growth estimate in this report Statistics New Zealand economic data Statistics New Zealand s National Accounts division provided monetary valuations of annual timber harvests, based on analysis of the output of the Forestry and Logging industry. Exotic timber price information is also sourced from National Accounts division, as discussed in Details of methodology Net Present Valuation methodology The SEEA recommends that where possible, market prices are to be used in the valuation of assets. In the absence of a comprehensive time series of market data, SEEA presents several options for forestry valuation, the most relevant being the simple Net Present Valuation (NPV) (United Nations et al, 2003). This values the asset at the net present value of future benefits accruing from holding or using the asset. In order to implement the NPV methodology, detailed data describing the physical parameters of the forest are required, as well as economic data describing market conditions which determine the expected return from the asset. An integral part of the NPV methodology is the application of a discount rate, which discounts the value of the asset over the time period, from the date of valuation to the expected maturity date of the asset. In valuing timber resources, this is necessary since returns on investment are not expected to be realised until the expected date of harvest. The choice of discount rate has a significant influence on the asset valuation, and this pivotal factor in the NPV methodology is the subject of much debate (Dixon et al, 1986). An NPV for standing timber 10

11 values the asset at a point in time, and depends on the current market prices, the physical characteristics of the forest, and the discount rate chosen. Discounting the value of an asset Discount rates express a time preference by the asset s owner for money generated now or in the future (Pearce, 1989). By discounting future income so it is comparable with income earned today, an asset s value can be assessed in present day terms. Simple Net Present Value methodology The simple NPV methodology for valuing standing timber, according to the SEEA, can be expressed with the following formula, where: S = value of standing timber A = area of the forest, generally in hectares or thousands of hectares Q = quantity of timber, such as cubic metres per hectare p = average stumpage price per cubic metre r = discount rate Variables with the suffix t refer to the measurement at the time of the valuation, while variables with the suffix T refer to the measurement at the time of maturity (harvest age). S = n t T T T t t = 1 (1 + r ) A p Q Methodology used in this report Due to the lack of concordance between available stumpage prices and physical forest data, the formula above could not be applied exactly. It is possible, however, to approximate the formula by estimating an NPV price per cubic metre for exotic forests, based on a sample of commercial forestry plantations. Only forest plantations valued using an NPV valuation are included in the sample. This NPV price is then multiplied by the cubic metres of exotic forests available for wood supply. The formula under this approach becomes: S = n t= 1 AQ NPV t Where: NPV pt = the NPV price per cubic metre at time of valuation The NPV pt variable implicitly includes the forest owners' estimates of stumpage prices and discount rates. Therefore this formula is effectively the same as the previous one, although the stumpage price and discount rate are not explicitly identified. The NPV price used in these estimates is the same as that used in the National Accounts quarterly constant price increase in stocks estimates for exotic timber (Statistics New Zealand, 1996). The monetary stock estimates in this report are derived from multiplying the NPV price against total standing volume in cubic metres from the MAF NEFD publication. t pt 11

12 The NPV price estimate is based on industry-sourced forestry valuations which have been subject to discounting. Different forest owners may have quite different valuation approaches. Some companies may estimate future timber prices in their valuation estimates, while others extend current timber values out to the future. In many cases, differences in valuation technique may be justified by factors such as location. These estimates, therefore, make no adjustment for different valuation approaches from different companies, or companies changing their own valuation assumptions. The sample of commercial forestry plantations used in these estimates is assumed to provide consistent and representative estimates of timber price. The methodology used to value standing timber in this report implicitly incorporates stumpage prices and discounting. In principle, the estimate should be representative of the rates of discount and stumpage prices applying within the forestry industry, for each year. Harvested timber valuations are sourced solely from Statistics New Zealand economic data, representing the market value of timber from the forestry and logging industries, for each year. The NPV method does not apply as the harvesting income is current income only Coverage of accounts Valuations in this report refer to total exotic standing timber which is available for wood supply. This covers forest area where legal, economic, or environmental restrictions do not have a significant impact on the supply of wood. For exotic forests, this means exotic plantations. As mentioned in the previous section, it was not possible to disaggregate the available price data to provide valuations of exotic forest by species. This is also the case for indigenous forest available for timber supply (see 6.2). The stock change variables do not represent all stock changes over the course of each year. While the account has the appearance of a balance sheet, it does not reconcile from opening to closing stocks, and would not be likely to, even if all stock changes were valued. This is due to different valuation techniques being applied to different variables, for example the valuation of harvested timber is not on an NPV basis (as explained in 3.3). Closing stock valuations also implicitly include a re-valued component, where the timber stock remaining from the opening stock volume is re-valued at the following year s price. 12

13 5 Data table and commentary 5.1 Data table Table 1 Value of Exotic Standing Timber Available for Wood Supply Year ended March $million Total opening value 13,084 12,518 11,839 12,716 13,843 14,323 Natural growth (+) ,080 1,117 1,142 Harvested timber (-).. 1,687 1,641 1,520 1,457.. Total closing value 12,518 11,839 12,716 13,843 14,323 14,533 Symbol:.. not available 13

14 5.2 Commentary on data Table 1 shows the values of standing timber available for wood supply from exotic forests. This is the first part of the proposed account which will also provide for valuation of indigenous timber available for wood supply, and non-market valuation of forest not available for wood supply. These areas are future developments for this account. An example of the proposed full account is provided in 6.5. Currently, exotic standing timber available for wood supply is the only completed component of the account. Over the years examined, closing stock values increased in every year except for 1995/96, with an overall 16 percent increase from 1995 to The age structure of New Zealand forests is such that there is a significant amount of trees approaching harvest age, a characteristic that has been termed the wall of wood (MG Business, 2003). The increase in value shown by the data is consistent with this factor when the NPV method is applied, as trees which are close to harvest age will have a higher value than younger trees due to the progressively lessening impact of discounting. The value of natural growth increased 18.6 percent over the studied period. This is also consistent with the age structure of exotic forest in New Zealand because timber growth does not occur in a linear pattern over a tree s lifespan. For example, radiata pine which is managed intensively for pruned sawlog production experiences the greatest volume growth between 20 and 25 years, with total volume potentially doubling between 20 and 30 years (Ministry of Forestry, 1996). The graphs below show comparisons between closing stock volumes and values, and timber growth volume and timber growth values. Valuations of harvested timber are not provided for 1995 or 2000, due to the unavailability of data consistent with valuations in other years. A valuation for 2000 will be available in the future. Between 1996 and 1999, the value of exotic timber harvested decreased by 13.6 percent, showing a consistent downward trend each year. 14

15 Figure 1 Closing Timber Stock Volume and Value Volume 16, ,0 0 0 Closing stock volume (millions m 3 ) Value 12, , ,000 6,000 4,000 Closing stock value ($m) 50 2, Figure Timber Growth Volume and Timber Growth Value Value 1, ,0 0 0 Timber growth (millions m 3 ) Volume Value of growth ($m)

16 6 Future developments 6.1 Standing timber valuations by exotic species In 2000, around 90 percent of New Zealand s exotic standing timber volume available for wood supply consisted of radiata pine, 5 percent consisted of douglas fir, and the remainder was a mix of other softwoods and hardwoods. Physical Stock Account for Forestry Resources in New Zealand (Statistics New Zealand, 2002) includes detail of forest area and timber volume by exotic species. Due to data limitations, it was not possible to calculate the value of New Zealand s exotic forests by species to an acceptable level of accuracy. This is planned for future accounts, providing the issues surrounding the data limitations can be addressed satisfactorily. 6.2 Indigenous forest available for timber supply In 2000, 16 percent of the 6.2 million hectares covered by indigenous forest in New Zealand was classified as being available for wood supply. This area falls under different legislation, including Part IIIA of the Forests Act 1949, the South Island Landless Natives Act 1906 (SILNA), or as part of the Timberlands West Coast production (which ceased in 2002). Under the Forests Act 1949, in order to harvest timber from indigenous forest, a Sustainable Forest Management (SFM) plan or permit is required. SFM plans and permits are designed to ensure the long term sustainability of the forests from which timber is to be harvested. In recent years, the production of indigenous timber under SFM plans and permits has not been at the maximum allowable rate. This has been attributed to limited consumer demand and unfavourable market conditions in general. The rates of approval for SFM plans and permits have been increasing since 1996 when the last harvesting approved under previous legislation ceased. MAF projections predict that assuming current trends continue, the total approved harvest in 2010 is likely to be up to 166,100m 3, with likely additional volume of 20,000m 3 from SILNA forests (Ministry of Agriculture and Forestry, 2002). Levels of roundwood produced per volume of timber harvested from indigenous forests can vary, depending on which tree species is harvested. Indigenous roundwood production in the year ended 31 March 1997 totalled 110,000m 3, of which approximately 40,000m 3 came from Timberland West Coast Ltd operations in the South Island, 25,000m 3 from SILNA forests, and the remainder being harvested under Part IIIA of the Forests Act 1949 (administered by MAF). By 2001, production had declined to about 50,000m 3, of which 22,400m 3 came from Timberland West Coast Ltd (Ministry of Agriculture and Forestry, 2002). This operation ceased on 31 March 2002, in accordance with government policy. Based on the current management regime of indigenous forests available for wood supply, an NPV-based measurement technique could, in principle, be used to measure the value of these forests. In practice, however, there are major data gaps in both the volumes and prices required, and these forest stocks cannot be estimated with certainty at the national level. The available information indicates that indigenous forests available for wood supply are likely to be worth hundreds of millions of dollars in total. 6.3 Valuation of other forest functions Up to this point, this account has considered valuation of forestry assets in terms of the standing timber available for wood supply. However, forests perform other important functions that are not directly measurable in terms of value to the market. For instance, forests are crucial to the physical environment through their surrounding ecosystem; they are used as recreational areas which are of value to society; and they also provide non-direct economic value to agriculture and forestry by functioning as shelters or windbreaks, for example. 16

17 SEEA recognises that forest assets should not only be considered in terms of the market value of cultivated forest, but also in terms of the value of non-cultivated forest which is often not available for timber supply. Cultivated forests will also have non-economic functions. In principle these functions should be valued separately from the existing economic value of the forest. Valuations of forests which are not available for wood supply, and the non-economic forest functions of commercial forests, may be investigated for inclusion in future accounts. However, the SEEA is not specific about how forest functions other than timber supply to the market should be valued. Chapter 9 of SEEA 2003 includes a general discussion of alternative pricing techniques but does not discuss which techniques could, or should, be applied to valuing forestry functions. Some forest uses, such as shelterbelt or windbreak functions, may be able to be estimated in terms of their value to the crops or activities that they protect. They can be considered to have a non-direct economic benefit. Other forest functions, for example the value of a forest to the surrounding ecosystem, are likely to be harder to value in monetary terms. It is likely that the ability to carry out such valuations will ultimately be dependent upon available data, and the acceptance of techniques for valuing non-market forestry services. 6.4 SEEA-based full account structure Section 6.5 provides an example of a SEEA-based full monetary stock account for forestry resources in New Zealand. The account is structured at an aggregated level, with standing timber organised in the two broad groups of exotic and indigenous forest. Valuations by species could form a separate supplementary table, or could be implemented in the proposed structure. The completed column is equivalent to the data presented for the year 2000 in Table 1, illustrating the potential for development of this account in the future, as discussed throughout this section. 17

18 6.5 Example of SEEA-based full monetary stock account for 2000 Table 2 Example of SEEA-based Full Monetary Stock Account for Forestry Resources Standing timber ($ million) Available for wood supply Not available for wood supply Total Exotic Total Indigenous Total Total Exotic Total Indigenous Total Total standing timber Forest Non- Market functions Total Forestry 18 Total opening value 14, Natural growth 1, Harvested timber Total closing value 14, Symbols:.. not available Forestry Monetary Stock Account

19 7 Glossary Conifers Cone-bearing trees belonging to the order Coniferales. They usually have needle-shaped leaves and produce timber commonly referred to commercially as softwood although the wood is not always soft. Crown cover Ground area covered by a tree s crown, delimited by the vertical projection of its outermost perimeter. Crown cover can be used to measure the extent to which the crowns of trees are nearing general contact with each other, and are often used to define a forest. Cultivated forest Commonly referred to as managed forest by the New Zealand forestry industry. The term cultivated is used in the SEEA, and has therefore been used in the forestry account to maximise international consistency. Both terms refer to forests that are actively managed, usually for economic purposes, and provide repeated products. Current Annual Increment (CAI) The Current Annual Increment is an annual measure of the volume of total forest growth (as opposed to recoverable forest growth see RAI definition) within New Zealand s exotic forest. Degradation Deterioration in the quality of the forest as a result of activities and processes such as surrounding concentrations of pollutants, improper land use, natural disasters, pests and disease. Depletion Reduction in the quantity of a natural resource. For forestry, depletion refers to the part of the harvest that is over and above the sustainable level of the resource stock. For non-renewable resources, such as minerals, depletion refers to the quantity of resources extracted. Discount rate The discount rate expresses the degree to which an economic agent or asset owner prefers income today rather than in the future. Environmental accounting Under the SEEA framework this refers to the combination of natural resource accounts. This consists of stock and flow accounts in physical terms, and the monetary valuation of these accounts. Environmentally adjusted GDP This is also known as green GDP. The original GDP figure, which measures economic growth, is adjusted to take into account the cost of natural resource depletion and environmental degradation. Gross Domestic Product (GDP) Gross Domestic Product (at market prices) is the sum of the gross value added of all resident producers at market prices, plus taxes less subsidies on imports. Hardwood This term is often used interchangeably with broad-leafed, but specifically refers to the wood of a broad-leafed tree species. The distinction between hardwood and softwood is based on the type of tree. It does not always reflect the relative hardness. 19

20 Natural assets Assets of the natural environment. These consist of biological assets (produced or wild), land and water areas with their ecosystems, subsoil assets and air. Forestry is considered a natural (ie biological) asset, and may be cultivated or non-cultivated. Natural resource accounting An accounting system that deals with stocks and flows of natural assets, comprising biota (produced or wild), subsoil assets (proved reserves), and water and land with their aquatic and terrestrial ecosystems. The term is used frequently in the sense of physical accounting, as distinguished from monetary (environmental) accounting. However, the terms natural resource accounting and environmental accounting are often used interchangeably. National Exotic Forestry Description (NEFD) A publication by New Zealand s Ministry of Agriculture and Forestry (MAF), detailing physical measurements of the country s exotic forests. Net Operating Surplus (NOS) The gross operating surplus of an industry, less its consumption of fixed capital. The gross operating surplus measures the surplus or deficit accruing from production. This measure excludes rent, interest or similar charges. Net Present Value (NPV) A technique by which the present value of an investment or asset is found by discounting all current and future income streams by an appropriate rate of return. Non-cultivated forest Also known as non-produced or natural forests. Non-cultivated forests occur naturally. The distinction between cultivated and non-cultivated is based on the amount of human intervention. Plantation A man-made forest, usually established by planting seedlings. Planted production forest An area of trees, not less than one hectare in size, planted and managed with the intention of producing wood or wood fibre. In New Zealand almost all planted production forests involve introduced tree species. (NEFD Glossary of terms, appendix 1) Podocarp A coniferous tree belonging to the family Podocarpaceae. Recoverable Annual Increment (RAI) An annual measure of the volume of recoverable (ie, considered accessible for harvest) forest growth within New Zealand s exotic forest resource. South Island Landless Natives Act (SILNA) The South Island Landless Natives Act 1906 allows the harvest of indigenous timber in some circumstances and areas, outside the provisions of the Forests Act Sustainable Forest Management (SFM) Plans and permits that must be applied for in order to harvest indigenous forests under the Forests Act Softwood This is often used interchangeably with coniferous, and is specifically the wood of coniferous tree species. The distinction between hardwood and softwood is based on the type of tree. It does not always reflect the actual hardness of the wood. 20

21 Sustainable management In the context of, and for the purposes of this report, sustainable management is defined in accordance with the Forests Act 1949, Schedule 2: The principal sustainable forest management prescription is that the rate of harvest from a forest or group of forests managed as a unit shall be limited to a level at which the forest can continue to supply an annual or periodic non-diminishing yield in perpetuity, which yield shall include the harvest of windthrown or dead trees as they become available. System of Environmental and Economic Accounts (SEEA) The SEEA was developed by the United Nations Statistical Division as a satellite system to the System of National Accounts (SNA), for the incorporation of environmental concerns (environmental costs, benefits and assets) in the national accounts. The SEEA is intended to be a system with global application and standards, suitable for all countries and all aspects of the environment. System of National Accounts (SNA) An international accounting framework consisting of a coherent, consistent and integrated set of macro-economic accounts, balance sheets, and tables based on a set of internationally agreed concepts, definitions, classifications and accounting rules. It provides a comprehensive accounting framework within which economic data can be compiled and presented in a format that is designed for the purposes of economic analysis, and decision and policy making. 21

22 8 Bibliography Dixon J A and Meister A D (1986). Time horizons, discounting and computational aids in Economics Valuation Techniques for the Environment. A Case Study Workbook, eds J A Dixon and M M Hufschmidt, The Johns Hopkins University Press, Baltimore. Manley B (1999) Discount rates used for forest valuation results of 1999 survey, New Zealand Journal of Forestry, 44:3, Nov 1999, Ministry of Agriculture and Forestry: [5 November 2004] Ministry of Agriculture and Forestry ( ). A National Exotic Forestry Description, Ministry of Forestry, Wellington. Ministry of Agriculture and Forestry (2000). New Zealand forestry statistics 2000, [5 November 2004] Ministry of Agriculture and Forestry (2002). Indigenous Forestry on Private Land: Present Trends and Future Potential, MAF Technical Paper No 01/6, Ministry of Agriculture and Forestry, Wellington. Ministry for the Environment (1997). The State of New Zealand's Environment 1997, Ministry for the Environment, Wellington. Ministry of Forestry (1996). Harvesting a Small Forest, Ministry of Forestry, Wellington. Statistics New Zealand: Statistics New Zealand (2002). Physical Stock Account for Forestry Resources in New Zealand , Statistics New Zealand, Wellington. Statistics New Zealand (1996). Quarterly Gross Domestic Product Sources and Methods, Statistics New Zealand, Wellington. United Nations et al (2003). Integrated Environmental and Economic Accounting 2003 (SEEA 2003), Final draft, United Nations, European Commission, International Monetary Fund, Organisation for Economic Co-operation and Development, and the World Bank, [5 November 2004] 22

23 Appendix 1 Forestry assets and the forestry industry The forestry stocks estimate is combined with other Statistics New Zealand forestry estimates in the table below. The ratio is based on the net operating surplus of the forestry industry divided by the asset base of the industry (plant, machinery, transport equipment, buildings, and forestry stocks). This ratio should be interpreted with care, but provides an indication of the returns which the industry s assets are generating over time. If the ratio is increasing, this may indicate that more land will be converted into forestry. If the ratio is decreasing over time, this may indicate that forest owners will convert their forests to other land uses once their forests are felled, or may revalue their forests downwards. In practice, this ratio has gradually declined over the period covered by the Forestry Monetary Stock Account, from 0.07 in 1995 to 0.05 in Forestry and Logging s Gross Domestic Product is consistently just over one percent of New Zealand s total GDP. In employment terms, Forestry and Logging consistently employs less than one percent of New Zealand s full-time equivalent workers (FTEs). For example, in February 2000, Forestry employed 9,100 FTEs and Services to Forestry employed 3,330 FTEs; New Zealand s total FTEs were 1,406,300 (Statistics New Zealand Business Statistics). Table 3 Forestry and Logging Industry Statistics Year ended March $million Net Operating Surplus (NOS) Capital stock Forestry stock 12,518 11,839 12,716 13,843 14,323 14,533 Ratio of NOS/total stock Gross Domestic Product 1,166 1,201 1,236 1,165 1,073 1,109 New Zealand GDP 87,321 92,679 97, , , ,570 Ratio of Forestry and Logging GDP/NZ GDP