Returns From Trees And Farming

Press, Volume C, Issue 29506, 6 May 1961, Page 7

Returns From Trees And Farming

The value of an acre of bare land in the Burnham-Aylesbury area devoted to forestry can be roughly assessed at £33. compared with £36 for agriculture. These estimates of “land expectation values” from the two land uses are given in a paper presented by Dr. J. T. Ward, senior lecturer in agricultural economics at. Canterbury Agricultural College, to the recent conference of the Jiew Zealand Institute of Foresters in Wellington.

The estimates are given in a case study to illustrate the economic principles of land use. The "land expectation values” enable direct comparisons to be made of the capital value of land in the two competing uses. Where the land expectation value under forestry is greater than the land expectation value under agriculture, the land should be devoted to forestry, and vice versa. Formulae to compute land expectation values have been worked out by forestry and agricultural experts in New Zealand and overseas. By adapting these formulae . to local conditions. Dr. Ward has computed the land expectation values for the Burnham-Aylesbury area. In general terms, the capital value of an acre of land is derived from the gross returns expected from the land, less the costs involved in producing these returns, over a period of years. Because forestry takes so much longer than agriculture to produce any return at all, an appropriate allowance (based on interest rates) has to be made for this factor. Dr. Ward emphasised that his "case study” should be regarded “essentially as an exercise showing how the principles developed in this paper may be applied, rather than a study designed to compare the productivity of agriculture and forestry in a particular area. "The Burnham-Aylesbury area on the Canterbury Plains is by no means well suited to timber production, due to relatively unfavourable climatic conditions and light shallow soils. Indeed, the primary purpose of plantations there has been to serve as windbreaks, rather than for the production of timber.” Dr. Ward was provided with data on forestry in the area by Mr E. A. Cooney and Mr A.' W. Graybum, of the Selwyn Plantation Board. The information was based on accounts kept for one of the board’s plantations of 1000 acres, which was established in the late 1930’5. The costs and return were revalued at present day prices,

and a 40-year rotation of radiata pine was assumed. Under these assumptions, Dr. Ward was able to calculate the following returns and costs an acre: — Returns £ Final yield .. 400 Ist thinning (15 years) 16 2nd thinning (30 years) . 40 Costs Ist pruning (15 years) 11 High pruning (20 years) .. .. 5 Cost of establishment 12 Annual cost of maintenance 1.5 The rate of interest was taken at 5 per cent. The rate of interest is Introduced to allow for the fact that “a return of £ 100 in 40 years’ time is not worth £lOO here and now.” The land expectation value “may be regarded as the capital sum that could be paid now for land to be planted in forestry, if the costs of all other inputs were to be rewarded at the prevailing market rates and compounded over the period of rotation." The Faustmann formula for computing the land expectation value gave an answer of £334 an acre, using the above data. Maximum Value “In this example, this must be taken as a maximum value, because it was not found possible to allow for risks in forestry (fire, windthrow. insect attack, etc.).” With unpublished figures from an economic survey recently carried out by the department of farm management at Canterbury Agricultural College calculations have been made of the land expectation value under agriculture. The survey covered 40 farms in the BurnhamAylesbury area. A preliminary analysis of the data, said Dr. Ward, showed gross returns averaged £11.5 an acre and total costs, including an allowance for management, £9.7 an acre. This calculation gives a net output of land of £l.B an acre, per annum. Capitalising this annual value, at 5 per cent, gives a land expectation value in agriculture of £36 an acre. In suggesting this method of comparing the rival claims of forestry and agriculture in the same area, Dr. Ward points out that it requires estimates of future levels of product prices, costs and interest rates. In his study he projected present values into the future, but “it is, clearly, highly unlikely that this will be so.” The problem could be overcome either by using forecasted prices and costs, or by making several calculations based on different prices and costs, or by a combination of the two methods.